1099-R Roth IRA Distribution

[dellewis54]

I took $5,000 Distribution from Roth-IRA.   When I entered the $5,000 into TurboTax, I entered the 7. Distribution Exemption code T.  The Roth was created in 2018.   TurboTax asked if the Roth was created prior to 2016, I said no, and my taxes owed increased by $1,100.   

I thought money I took from a Roth was after taxes, tax free ?   Why would I have to pay $1100 taxes on after tax money withdrawn from Roth ! ?

[macuser_22]

The question applies to ANY Roth IRA owned not then 5 years, not just that account.

Only the earnings distributed are subject to at tax or penalty.

You can always withdraw your own Roth contributions tax and penalty free.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
I’ll choose what I work on (if that screen comes up),
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

One of the followup questions will ask for your prior year** contributions not previously withdrawn. Those contributions that still remain in the Roth will not be taxed or subject to a early withdrawal penalty. That will add a 8606 form to your tax return with the Roth contribution and tax calculation in part III.

Note: **Prior year - any current year Roth contributions should be entered into the IRA contributions section. They will not show up in the prior years contributions but will be accounted for on the 8606 form that calculates the taxable amount.

[ColeenD3]

No, it is not automatically tax-free but it can be under certain circumstances. 

You can always withdraw contributions (but not earnings) that you made to your Roth IRA tax and penalty free at any time. 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

A 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.

[dellewis54]

Thanks so much for your quick reply.   

NOT:    But this Roth was funded in 2018 with AFTER TAX dollars.   I did not convert pre-tax IRA funds to a Roth IRA.     These were after tax dollars I used to fund this Roth in 2018.    So why pay a penalty on withdrawing after tax dollars in 2020 (  which was used to pay my 2019 taxes by the way).    

So I deposited after tax dollars into a Roth, in 2018, then I had to withdraw $5,000 in 2020 to pay 2019 taxes owed.   I should not have to pay a penalty of $1,100 because I withdrew $5000 from and after tax Roth deposit.  Im confused