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New Member
posted Apr 18, 2023 10:15:51 AM

Why am I being taxed on the full amount of a Roth IRA withdrawal? I thought only the amount you earn interest on should be taxed

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1 Replies
Level 8
Apr 18, 2023 10:18:16 AM

In order for your Roth distribution to not be taxable, it must qualify.

 

You can always withdraw contributions (but not earnings) that you made to your Roth IRA tax and penalty free at anytime. Additionally, the Ordering rules for withdrawals from a Roth IRA are: first from regular contributions, then from Conversion and rollover contributions, on a first-in, first-out basis and finally from Earnings on contributions.

Please note: A qualified distribution from a Roth IRA is tax-free and penalty-free, provided that the five-year aging requirement has been satisfied and one of the following conditions is met:

  • Over age 59½
  • Death or disability
  • Qualified first-time home purchase

non-qualified distribution is subject to taxation of earnings and a 10% additional tax unless an exception applies. For Roth IRAs, you can always remove post-tax penalty contributions (also known as "basis") from your Roth IRA without penalty.

When you are entering this information into TurboTax, your Form 1099-R, box 7 codes J, Q and T identifies a Roth IRA distribution and determines the tax treatment. If you have a J or a T, the distribution is considered taxable unless there is an exception. TurboTax will guide you on all the exceptions.

Please refer to this IRS link for more information about Roth IRAs:

https://www.irs.gov/publications/p590b/ch02.html#en_US_2015_publink1000231071