Which code should the custodian of my Roth IRA have entered into Box 7 of my 1099-R?

[QRFMTOA]

In TY 2020 at the age of 56, I liquidated my $12,000 Roth IRA, which I have held for more than 10 years, to buy a first home.

Which code should the custodian of my Roth IRA have entered into Box 7 of my TY 2020 1099-R?

Thanks!

[VolvoGirl]

What code is in box 7?  Did you get the 1099R yet?  Don't try to enter without the actual 1099R.   A common code is code 7 which happens to be the same as the box # so it might be easy to miss.

[QRFMTOA]

I do not think you understood my question...

From IRS Instructions for Forms 1099-R and 5498 Use Code 7 in box 7 for reporting military pensions or survivor benefit annuities.

[QRFMTOA]

FYI...

My custodian entered the wrong code in Box 7 and I want to properly instruct him on the correct code.

[DMarkM1]

From the Form 1099R instructions:  "Roth IRAs. For distributions from a Roth IRA, report the gross distribution in box 1 but generally leave box 2a blank. Check the “Taxable amount not determined” box in box 2b. Enter Code J, Q, or T, as appropriate, in box 7. Do not use any other codes with Code Q or Code T." 

Codes Q and T both have an age 59.5 requirement so code J is what is left.  

Check Table 1 on page 15 for the table of codes for box 7 on the Form 1099-R for more information.

[VolvoGirl]

@QRFMTOA  You said it is from a ROTH IRA.  That is not a military pension.  The issuer probably used the right code.   Why do you think it's wrong?  Is it coming up taxable?

[QRFMTOA]

.

@DMarkM1   @VolvoGirl 

I do not understand why Code J is the correct entry for Box 7 given the following:

First, on page 29 of Pub 590-B after the paragraphs "What Is a Roth IRA?" and "Are Distributions Taxable?", it reads...

What Are Qualified Distributions?
A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

1. It is made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit, and
2. The payment or distribution is:

a. Made on or after the date you reach age 59-1/2,
b. Made because you are disabled (defined earlier),
c. Made to a beneficiary or to your estate after your death, or
d. One that meets the requirements listed under First Home under Exceptions in Chapter 1 (up to a $10,000 lifetime limit).

Second, my current and only Roth IRA custodian opened my Roth IRA in 2004 with my one and only contribution. Two months before purchasing my first home, I sent my custodian's account manager an email using his secure email system instructing him to liquidate my Roth IRA for the specific purpose of buying a first home. The next day at my request, he and I reviewed the requirements listed under First Home under Exceptions in Chapter 1 and agreed that I satisfied all of the requirements. We would discuss my satisfying the requirements listed under First Home under Exceptions in Chapter 1 on at least two occasions between the time I purchased the house and his issuance of the 1099-R.

Third, on page 20 of Pub 590-B under the heading Letter Codes, it reads: J - Early distribution from a Roth IRA, no known exception (in most cases, under age 59½).

Can someone explain how J could be the right code for Box 7 given the fact that I made a qualified distribution (Ref.: Pub 590-B, page 29) with exceptions (Ref.: Pub 590-B, page) and my custodian's representative acknowledged my compliance with the above referenced requirements prior to the issuance of the distribution check?

Thank you, in advance, for helping me understand this.

JWK in CVA

[QRFMTOA]

@DMarkM1  @VolvoGirl 

OK, OK.

I still do not understand why it is not J, but I do understand why it is not Q or T. 

That said, I am ready to move on...

Now, I cannot figure out why TurboTax is not populating Form 8606 - Line 20 (Qualified first-time homebuyer expenses. Do not enter more than $10,000 reduced by the total of your prior qualified first-time homebuyer distributions.) with the amount $10,000.

Ugh!

[DaveF1006]

In this instance, the more appropriate code would be a code T, Roth Distribution, exceptions apply.

[QRFMTOA]

@DaveF1006 

I expect my account manager at my Roth IRA custodian to claim he did not know the Roth distribution was going to be a qualified distribution under the first-time homebuyer exception. 

A bookkeeper-friend of mine said I should ask my account manager to reissue a corrected 1099-R.

Is that necessary or can I just change the code when entering it in TurboTax and attach an explanation, if that is even necessary?

Thanks, guy!

[QRFMTOA]

.

@DaveF1006 

In this instance, the more appropriate code would be a code T, Roth Distribution, exceptions apply.

Just to make sure I understand...

Is that because I made a qualified distribution pursuant to page 29 of Pub 590-B with exceptions pursuant to page 25 of Pub 590-B even though I was 56?

Sorry for being so **bleep** retentive!

JWK in CVA

[DaveF1006 · Accepted solution]

@QRFMTOA  After looking at this more thoroughly, leave this as a Code J.  After I responded initially, i realized that the IRS will only waive an early withdrawal penalty for a First Time Purchase for $10,000. Since you took a $12,000, you will be assessed an early withdrawal penalty of $200 for the additional $2000 amount over the $10,000 limit for first time homebuyers.

When you enter your $12,000 distribution as a code J, the program will ask you a series of questions. Stay in this section until you are completely done. When you get to your 1099R summary, press continue at the bottom.

Work through the series of questions until you get to the screen that says let's see if we can reduce your early withdrawal penalty. Next the program will ask If You Used your IRA to pay Any of These Expenses.  Here you will record the First Time home purchase up to $10,000.  After you finish this section, Turbo Tax will inform you that will have a $200 early withdrawal penalty based on that excess amount of $2000.

If you use a code T, then the program will assume you have a known exception but will ignore the fact that this is a First Time Homebuyer Distribution. If the IRS discovers this mistake, it could be costly later on in the future. We want to avoid this from happening. 

Do not apologize for being a retentive. I consider myself one with great pride.

[QRFMTOA]

@DaveF1006 

Unfortunately, the world is once again in homeostasis.

You are the third very thoughtful contributor who has given me a convincing answer to my question.

Thank you very much.

JWK in CVA