The only reason you would need to enter the amount of Roth IRA distribution used for your first-time home purchase would be to try to reduce or eliminate the early distribution penalty. However, your basis in the account must also be considered when determining if any income tax is owed on the Roth IRA distribution.
If the total distribution was less than your basis in the account, then the distribution would not be subject to income tax. If the total distribution is greater than your basis, then that indicates that you are taking a distribution of some earnings in the Roth IRA. The earnings portion of the early distribution is subject to income tax and possibly the early distribution penalty (unless you meet an exception such as first-time homebuyer). This is when it is important to be sure that you have indicated that the distribution was from an IRA by checking the box on the Form 1099-R input screen, as advised by Champ DoninGA.
Also, be sure that you have entered the basis of the Roth IRA into TurboTax in order for the distribution to be treated correctly.
Use the information below to do so:
- On the top row of the TurboTax online screen, click on Search (or for CD/downloaded TurboTax locate the search box in the upper right corner)
- This opens a box where you can type in “Roth IRA” (be sure to enter exactly as shown here) and click the magnifying glass (or for CD/downloaded TurboTax, click Find)
- The search results will give you an option to “Jump to Roth IRA”
- Click on the blue “Jump to Roth IRA” link
This will bring you to a screen with checkboxes to indicate what types of accounts you had in 2021. Be sure that Roth IRA is checked. Click Continue.
If Traditional IRA is checked or if you have a spouse that had either type of account, the next questions will not pertain to your Roth IRA. Continue through this section until you are asked whether you made any contributions to your Roth IRA for 2021. This is the beginning of the section where you will enter details about your Roth IRA, including the basis.
Continue answering the questions according to your situation. On the screen where you see Let Us Track Your Roth IRA Basis, click Yes.
Then, on the screen titled Enter Prior Year Roth IRA Contributions, this is asking for your total contributions for years prior to 2021 (basis). If your basis exceeds your distribution, then the distribution will not be taxable. If the distribution exceeds your basis, then the excess will be taxable.
Finish the rest of the follow-up questions about your Roth IRA.
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