Entering 1099-R (only contributions taken out, no money made from it) made return much smaller

[sbear]

Hi, I had an IRA for a few months in 2019 and made contributions totaling about $1300. Then I decided to get rid of my IRA account because I couldn't make more contributions, then took out just the contributed amount. I received a 1099-R form from Vanguard, saying that the withdrawn amount is not taxable, as indicated by the distribution code J. 

However, when I put in my 1099-R form in my Turbotax account, it made both my federal and state tax return amount go down significantly.

I make not very much money, so I usually get most of my taxes back, but just putting in the 1099-R form seemed to make my federal tax return amount reduced to 40% of what it used to be and 70% of my state tax. What is going on? Any and all help would be appreciated. Thank you.

[MarilynG1]

Code J in Box 7 of your 1099-R indicates an Early Withdrawal from a Roth IRA, with no exception.  

If you are under 59-1/2 or have not had your Roth IRA for five years, it is considered taxable. 

Click this link for more info on Exceptions to IRA Penalties to see if you qualify. 

[sbear]

Thanks for your reply. However, I believe that my contributions were not taxable since I didn't make any money off of it. I found this question (https://ttlc.intuit.com/community/taxes/discussion/roth-ira-contribution-withdraws/01/1163002#M42591...) to be helpful in answering my question. 

[MarilynG1]

It could be the 10% Early Withdrawal Penalty that is increasing your taxable income (and taxes). 

[jvandy0112]

What is the rate of tax on the early withdraw?  I had the same thing I took out 14k and pre paid the $1,400 however my return dropped significantly?

[KarenM90]

For Roth IRAs, you can withdraw post-tax contributions from your Roth IRA without penalty.

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. 

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 Q, 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:  IRA Withdrawals

To enter your 1099- R in TurboTax Online :

1. Once you are in your tax return, click on the “Federal Taxes” tab ("Personal" tab in TurboTax Home & Business)
2. Next click on “Income & Expenses” ("Personal Income" in TurboTax Home & Business)
3. Next click on "jump to full list" or “I’ll choose what I work on”
4. Scroll down the screen until to come to the section “Retirement Plans and Social Security”
5. Choose "show more", then IRA, 401(k),Pension Plans (1099-R) and follow the onscreen instructions
6. After you enter your 1099R, (exactly as it is on the form you received)  you will get to the screen that says titled "Enter Prior Year Roth IRA contributions."  Be sure to enter your cumulative contributions for all prior years. 

Please note that all distributions will be reported on your tax return (whether or not they are taxable) on Form 1040 on line 4(a) and carried to 4(b) if taxable.

To preview your return, before you file:  

Sign into https://myturbotax.intuit.com/

• Under Tax Timeline, click on Continue your return
• Go to "My Account" > "Tools"
• Under the Tools Center, select "view tax summary"
• Select "Preview my 1040"