In May 2024, I made the maximum contribution to a Roth IRA, $7000. In December 2024, my situation and I needed that money so I withdrew the CONTRIBUTION amount, i.e. $7000. My understanding was that this withdrawal would NOT be taxed because I only withdrew the CONTRIBUTION, not the EARNINGS. After entering the 1099-R into TurboTax, it's telling that I must pay tax in amount of 10% of the withdrawal, i.e. $700 in tax. Why is that?
Withdrawals of your Roth IRA basis (the amounts that you contributed to your Roth IRA) can be withdrawn at any time without taxes or penalties. Your 1099-R should have Distribution code - J in Box 7, which indicates "Early distribution from a Roth IRA, no known exception". Your answers to the questions TurboTax asks you after you enter or upload your 1099-R will determine whether or not your withdrawal is subject to tax and/or penalty. Review your 1099-R and make sure of the following:
You may need to delete your 1099-R in TurboTax and re-enter to access all of the questions.
You have to tell TurboTax the amount of your contributions less any contributions taken in earlier years.
Withdrawals of your Roth IRA basis (the amounts that you contributed to your Roth IRA) can be withdrawn at any time without taxes or penalties. Your 1099-R should have Distribution code - J in Box 7, which indicates "Early distribution from a Roth IRA, no known exception". Your answers to the questions TurboTax asks you after you enter or upload your 1099-R will determine whether or not your withdrawal is subject to tax and/or penalty. Review your 1099-R and make sure of the following:
You may need to delete your 1099-R in TurboTax and re-enter to access all of the questions.