topic Early withdrawal 1099R penalty and tax question in Retirement tax questions

Early withdrawal 1099R penalty and tax question

mlevant1965 — Wed, 29 Jan 2025 16:46:42 GMT

Hello.

I haven't worked in 3 years. I am not 59 1/2 ( I will be in March, 2025) In January 2024, I needed to take out $12,000 from a Roth IRA. I have not made any contributions in at least 5 or more years. The only additions were whatever the IRA earned.

I see my 1099R online. and see the $12,000 distribution. When I imported the form in TurboTax, I am not seeing anything about the taxes I may need to pay or the 10% penalty. I have read about a rule stating if I made no contributions, which I haven't, I may not need to pay taxes, just penalty. This is not an employer contributed IRA. It is an IRA my stepdad left for me.

I appreciate the help/ Thank you.

Re: Early withdrawal 1099R penalty and tax question

Opus 17 — Wed, 29 Jan 2025 16:56:25 GMT

Whatever you heard is wrong or misunderstood.

You obviously made contributions at some point in the past to open the Roth IRA. Roth IRA withdrawals are always in the order of contributions first, conversions second, and earnings last. Withdrawal of contributions is always tax-free. Withdrawal of conversions is tax-free if it is more than 5 years since the conversion was made. Withdrawal of earnings is subject to income tax plus the early withdrawal penalty if you are under age 59-1/2.

When you enter the 1099-R, turbotax should ask you for your total lifetime contributions to the Roth IRA, any conversions and their dates, and the total of any prior withdrawals. Then it will calculate the taxable amount. For example, if you opened the Roth IRA with a $5000 deposit and never contributed more, and never withdrew before, then the first $5000 you withdraw is tax-free and the rest is earnings subject to tax plus penalty.

If you don't know the amount of prior contributions, ask the broker. You need to keep track, the IRS does not keep track for you.

Re: Early withdrawal 1099R penalty and tax question

mlevant1965 — Wed, 29 Jan 2025 17:01:23 GMT

Well the IRA was opened by my stepdad for me. I never touched it until last January.

While going through TurboTax, I didn't see it asking me any of the questions you have mentioned. I just imported it. Sorry. I am confused

Re: Early withdrawal 1099R penalty and tax question

Opus 17 — Wed, 29 Jan 2025 17:19:03 GMT

@mlevant1965 wrote:

Well the IRA was opened by my stepdad for me. I never touched it until last January.

While going through TurboTax, I didn't see it asking me any of the questions you have mentioned. I just imported it. Sorry. I am confused

If you import the 1099-R you should still be asked those question. Try going back and "revisiting" the 1099-R, or delete it and enter it manually. What code is in box 7? It should be a "J" for an early distribution of a Roth IRA.

If you don't know the amount of original contributions and can't find that information from the broker, then the entire amount will be subject to tax and penalty. The IRS does not have to give you any tax break (such as tax-free withdrawal of contributions) unless you can prove the tax break with reliable records.

Re: Early withdrawal 1099R penalty and tax question

DianeW777 — Sat, 01 Feb 2025 13:47:26 GMT

After you import (or if you deleted it and are adding it back), you must continue through the screens one by one to reach the questions about the distribution. After all 1099-Rs are entered, you must continue to get the Roth IRA follow up questions to determine the taxable amount.

As indicated by @Opus 17 only earnings will be taxable when withdrawn before retirement age, if applicable.

@mlevant1965