Turbotax NOT showing early IRA Distribution as taxable

[nappingbat]

I've taken an early Roth IRA distribution via SEPP (substantially equal periodic payment), which means I am taxed on the distribution but avoid the 10% early withdrawl fee.

On my 1099-R, I have entered $68000 distribution AND $68000 taxable.

When TurboTax (online or mac desktop, I've tried both) enters those in my 1040, it shows the taxable portion as $0. The taxable portion should be $68000.

Are others having this problem? Is there a fix?

[dmertz]

Even under a SEPP plan, you basis in regular contributions come out first under the Roth IRA ordering rules, followed by your basis in Roth conversions (which makes it unusual to do a SEPP plan with a Roth IRA).  Not until you have distributed all of your contribution and conversion basis will early distributions be subject to income tax.  See the calculation on Part III of Form 8606.

TurboTax properly ignores whatever you put in box 2a of TurboTax's 1099-R form because the taxable amount is determined on From 8606.

[nappingbat]

Thank you for taking time to reply.

I found form 8606 as you recommended. It does show pre-2023 contributions (8500) and rollovers (7500). 

Seems to me I should still be taxed on the difference (68,000-8500-7500=$52,000). But then again, this is why I pay TurboTax, I suppose. Either it is correct (in which case my inability to understand is irrelevant) or not (in which case, when the IRS comes calling Intuit will take full responsibility and handle any underpayments or penalties).

Do you have any thoughts on whether the software is handling energy credits correctly? Mine are entered in all the right places, but the impact is $0. (Yes, I qualify and yes, I owe a balance greater than what the credit should be.)

[dmertz]

With code J in box 7 and $68,000 in box 1 of the Form 1099-R, line 19 of Form 8606 should show $68,000.  With $8,500 of contribution basis on line 22 and $7,500 of conversion basis on line 24, the result on line 25a should be $52,000.

As of a month ago there was some problem with 2023 TurboTax propagating energy tax credits from Schedule 3 to Form 1040 line 20.  I don't know if that has been corrected yet.

[nappingbat]

Code J is "Early distribution from a Roth IRA, no known exception"

Mine shows code T, "Roth IRA distribution, exception applies".

I figured that SEPP was the exception here. But maybe it is coded wrong. I'll have to look into that. Thank you for the clue!

And, yeah, I saw the stuff where Energy Credits were not working properly back in Feb. Haven't seen anybody else complaining that it is still broken (yet).

Thanks again for taking the time!

[dmertz · Accepted solution]

If you are under age 59½ (necessary for this to be an early distribution), code T is incorrect.  Code T is for those who are over age 59½, disabled or dead, but the Roth IRA custodian does not know whether you have met the 5-year requirement for qualified distributions.  It is not to be used for other exceptions to the early-distribution penalty.