I am uncertain how to answer regarding Turbo Tax interview Questions about prior Year Roth IRA contributions (Distribution Ordering Rules). I am using TurboTax Desktop (TT).
Background:
I opened a Roth IRA in 2019, by a rollover of my Roth 401k ($3,540 - all from my payroll deducted contributions).
Subsequent deposits in the Roth IRA are as follows:
- in 2020, a partial rollover/conversion from my pre-tax 401k ($4,000)
- in 2021, a partial transfer/conversion from my traditional IRA ($5,000)
In 2023, I took a nonqualified partial distribution from the Roth IRA ($4,600). This was my first withdrawal. The Roth IRA remained open on 12/31/2023.
Questions:
When answering the Turbo Tax interview Questions about prior Year Roth IRA contributions, I am confused regarding the “Distribution Ordering Rules”:
1. TT Question: “Enter prior year Roth IRA Contributions. Confirm your net regular contributions prior to 2023 that remain in your Roth IRA.”
My Question: Is the initial deposit ($3,540 – rolled over from my Roth 401k) considered regular contributions?
2. TT Question: “Tell Us the Years. (Provide the) “years that you converted a traditional IRA to a Roth IRA”
My Question: Is the 2020 conversion ($4,000) from the 401k to be listed here, the same as a conversion from a traditional IRA?
Thank you!
To answer your questions, rolling over a Roth 401(k) to a Roth IRA is not considered to be a contribution or conversion; it is considered a rollover.
Under the ordering rules, the contribution basis comes out first and is tax and penalty free. If you are at least 59 ½ and the Roth IRA has been open for five years, any regular distributions from your Roth IRA will be tax and penalty free.
Funds from a traditional 401(k) rolled into a Roth IRA are considered a taxable rollover as opposed to a Roth conversion. Roth conversion only applies to traditional IRAs to a Roth IRA.
Here is a link to an Intuit blog that discusses Roth IRA Withdrawal Rules and Penalties.
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