Unable to Get TurboTax to Treat My Early Roth IRA as Contributions Only and Not Gains

[user17767409504]

In EXPERT @DavidD66 March 16, 2024 reply to "I got 1099-R for distr from Roth IRA. I took the distribution from the contributions and not the gains. Box 2b is checked. How to indicate that this is not taxable amt? There is no easy way to determine what is considered gain and what is considered contribution in a Roth IRA" posted by bysa926775 on March 16, 2024 5:21 PM, he said "As you go through the 1099-R Entry screens in TurboTax, after entering the information on the form, you will be asked a series of questions including: "Owned Any Roth IRA for Five Years?". You will then be prompted to "Enter Prior Year Roth IRA Contributions". As long as you owned a Roth IRA for at least five years and your prior year contributions are greater than the amount of your distribution, TurboTax will treat it as a non-taxable return of basis;" however, I do not get those questions when I go through the 1099-R entry screens. I am using the Online Do It Yourself Premium version of TurboTax. I only took distribution of contributions of my Roth IRA which should not be taxable, but I don't see a way to get TurboTax to treat the early distribution as nontaxable in the TurboTax version I am using. Is there a work around for the online TurboTax version or some other way to get to trigger these questions that I am not getting prompted for?

[NCperson]

@user17767409504 what code is in Box 7?  there should be no need for a workaround.  

[user17767409504]

Box 7 is code "J" which is "Early distribution from a Roth IRA, no known exception (in most cases, under age 59 1/2)"; however, box 2b. also has the "Taxable amount not determined" box checked. My brokerage did not ask me whether these were contributions, earnings or a mix of both when I took the withdrawal, so the brokerage would not know that these were only contributions that I withdrew.  It sounds like the TurboTax expert who I quoted in my original post had a solution to my problem, but for my version of TurboTax, I am not getting the same question prompts that he mentioned.  So, I am unable to follow his instructions; I am thinking there must be a way for the Online version to ask those same questions as well, but I haven't been able to get it to do so.  Or I'm thinking I can open some form and manually enter what I need to enable TurboTax to consider my early IRA withdrawal a qualified and not taxable and adjust the tax calculations accordingly.

I searched Google Gemini stating my situation & 1099-R as it is, and it said I should do the following:

How to handle this on your tax return

Since you are confident this withdrawal consists only of contributions, you won't owe taxes or the 10% penalty, but you have to "prove" it via your tax software or forms.

• Form 8606 (Part III): This is the most important part of your return. You will report the distribution here and enter your "basis" (total past contributions).

• The Math: If your total contributions are greater than or equal to what you withdrew, the software will calculate that your taxable amount is $0.

• The Result: Form 8606 tells the IRS: "The 1099-R says 'J', but my records show this was my own original money coming back to me.

  If the Gemini answer is correct, how can I do that in TurboTax and get the TurboTax software to handle the taxes I owe/get refunded properly?

[VolvoGirl]

I'll page @dmertz  for more help

[Opus 17 · Accepted solution]

The tax principle is that you withdraw contributions first.  So if your total of all current and past withdrawals is less than the total of all past contributions, you are withdrawing contributions and is not taxable.  You self-certify this on your tax return.  There is no additional form you must submit, although you should have records available in case you are audited. 

Turbotax is designed to help you by tracking your Roth contributions and withdrawals.  You tell Turbotax your contributions and withdrawals each year and it keeps track in a hidden worksheet and uses the information if you have a withdrawal.  But you don't need to do that.

What should happen when you enter a 1099-R with code J is that Turbotax will put up a screen that says something like "We notice that you have a withdrawal that may be taxable.  Let's ask some questions to help you lower your taxes."  Among those questions should be, when did you open your Roth IRA, how much did you contribute in past years, and how much did you withdraw in past years.   If you don't know the exact answers you can guess—turbotax doesn't care about the accuracy of your guess as long as your past contributions are more than your past withdrawals, the withdrawal will be tax-free.  (But you will need to prove it if the IRS asks questions later.)

Are you not seeing those questions?  They come after entering the 1099-R, just keep going (hit next or continue) until you get to the test questions for Roth IRA withdrawals. 

[dmertz]

As Opus 17 indicated, the necessary questions are reached by continuing forward from the page that lists the Forms 1099-R that you have entered.