Withdrawal from rollover Roth IRA (from after-tax 401k) should it be taxed?

[itsmegerryt]

Hi,

I am drafting my 2020 tax filing using TurboTax.  I have received 1099-R from my brokerage due to full withdrawal/distribution of my (rolled-over) Roth IRA in the first quarter of 2020, my one and only Roth IRA.  Full withdrawal/distribution with an amount of 39,150.50, less the taxes that I've asked for (about 5,800 for federal and 3,300 for state), and the Roth IRA account is still open with a zero balance (as of today).  This Roth IRA was opened November 2019 as a result of rollover from an after-tax/Roth-based 401k (laid off from the company) with a rollover amount of 39,028.43 (this is the total rollover contributed amount).  I had the after-tax 401k for 17 years and I'm under 59 1/2 years old.

I think I should not be paying additional taxes for the Roth IRA withdrawal since it was a rollover, except probably for the 10% early withdrawal penalty and the earnings of 122.07 since the time the Roth IRA was opened and the time of withdrawal.  I think I may be doing something wrong with the data inputs I am supplying to TurboTax.

My questions are:

1. Am I correct that I should not be paying additional taxes for the Roth IRA withdrawal and should I have to pay for the 10% early withdrawal as well?

2. There was a question about the Roth IRA if it's more than 5 years.  I've chosen less than 5 but should I consider it as more than 5 since it was a rollover from an after-tax 401k which I had for 17 years?

3. In the TurboTax Premium, there was a question about "net contribution to Roth IRA prior to 2020" (i.e. I think it was referring to 2019 and earlier).  Does this refer to that rollover contribution amount of 39,028.43?

Thanks for the help and clarifying my questions.

[macuser_22]

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@itsmegerryt wrote:

here was a question about "net contribution to Roth IRA prior to 2020" (i.e. I think it was referring to 2019 and earlier).  Does this refer to that rollover contribution amount of 39,028.43?

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The 1099-R for 401(k) distribution that was rolled to a Roth IRA should have had your after-tax contributions in box 5.

When TurboTax asks for your prior contributions  for  your Roth IRA  distribution add that amount to your contributions.     Since this was a rollover and NOT a conversion, the 5 year rule has been met if you owned ANY Roth IRA 5 or more years.

If your first and only Roth IRA was created in 2019 then the 5 year rule has not been met.

[itsmegerryt]

Thanks for your reply.

I think I should have added the following information, but this is my first (and only) Roth IRA which was a rollover from the after-tax 401k during November 2019.

For the 2020 1099-R (full withdrawal of the Rollover Roth IRA)

Box 1 (Gross Distribution): 39,150.50

Box 2a (Taxable amount): (blank)

Box 2b Taxable amount not determined: x  (or checked)

Box 2b Total distribution: x (or checked)

Box 4 (Federal income tax withheld): 5,872.52

Box 7 (Distribution Code): J

Box 14 (State tax withheld): 3,5223.51

During 2019 tax year, I received 2 forms related to the rollover of the after-tax 401k amount to the Roth IRA.

2019 Form 5498 (2019 IRA Contribution)

Box 2 (Rollover contributions): 39,028.43

Box 7 (IRA type): Roth IRA

(There is another Form 5498 and that was due to rollover of before-tax 401k amount).

2019 1099-R (Rollover distribution which contains before- and after-tax 401k amounts)

Box 1 (Gross distribution): 113,047.35

Box 2a (Taxable amount): 0.00

Box 2b Total Distribution: x (or checked)

Box 5 (Employee contrib/design Roth contrib): 39,028.43

It seems I cannot determine that the Roth IRA is more than 5 years old since it was opened only last November 2019.

[macuser_22 · Accepted solution]

5498 form are information  only just to show the money was received by the financial institution and do n ot go on a tax return.

The 5 tear rule applied to *IRA's* only and not to 401(k) Roth.   The 5 year clock start when  you open the first Roth IRA with any financial institution.

As I said above, you can apply the after tax "basis" that was in the 401(k) Roth to the rollover Roth IRA.    That does not affect the 5 year rule.  

You can always withdraw your own prior contributions tax and penalty free, any tax only applies to any earnings that are removed.   That is why TurboTax asks for your past contributions so they will not be subject to any tax.

If the total distribution was more then your basis (contributions) then the difference is taxable AND subject to an addition 10% early distribution penalty for being under age 59 1/9.

[itsmegerryt]

Thanks very much for the clarification.

That helps a lot!