Reporting distributions that were contributions Options

[gzwick26]

Hello,
Last year I needed to take out the $20,000 I had put in contributions over the years....I left in the amount that was the profit. I am trying to enter the information on taxcut but it gives me a penalty each time because it is being characterized as an early distribution. I know that I'm allowed to take out the contributions at any time penalty-free. Does anyone know where to report it and how? Thank you very much.

[J Simmons]

... I know that I'm allowed to take out the contributions at any time penalty-free.

Why's that?

[jevd]

Roth IRA or Traditional IRA ?

You may only do that in a Roth IRA.

[gzwick26]

This is a Roth Ira.

[jevd]

Check the software your using to be sure you indicated the distribution was from a Roth IRA.

Check instructions for form 8606 also. The software should pick that up if you indicate the distribution is from a Roth IRA.

I'm not familiar with Tax cut as I use a CPA and don't mess with it myself.

Also, if the Roth was funded by a conversion that is less than five years old, then you may be subject to penalties even though tax was already paid at conversion.

This post has been edited by jevd: Mar 23 2009, 01:15 PM

[gzwick26]

I didn't have any conversion. These are simply contibutions that I took out... not sure where and how to report it so it doesn't come up as a penalty on Taxcut.

[jevd]

I don't know Tax Cut but you should be able to indicate the distribution was from a Roth IRA. That should briing up a form 8606 to complete which should then indicate no tax on the distribution. If it doesn't then you should contact "Tax Cut" for instructions.
Anyone out there use this software and have any idea how to help this poster?

[K2retire]

Were you over age 59 1/2 at the time of the distribution? If not, that is why it is saying you owe tax.

If you are old enough, call the help number in the program. There are often small boxes that must be checked to make things work properly -- and they seem to hide in obscure places.

[Eric.]

You said you never had any conversions from traditional to Roth and presumably no rollovers either, based on your posts. So, to be a "qualified distribution", you need to be 59 1/2, disabled, the distribution was made to a beneficiary because of your death (which, because you wrote the post, is also presumably not the case), meets a first home exception, or is made after the 5-year period beginning with the first taxable year for which a contribution was made.

If you meet one of those and the distribution is, in fact, a qualified distribution, then you have either not selected the correct options in the tax program, Tax Cut is handling it wrong (isn't this an HR Block product? ... that's like going to quick check and expecting a quality latte), or the 1099 itself could be coded wrong and you entered the (incorrect) coding from your 1099. I believe the software likely has an over-ride option, but I strongly recommend that you do not use it unless you are 10,000% certain as to the propriety and taxibility of your distribution.

(edited for a vowel that escaped)

This post has been edited by Eric.: Mar 24 2009, 11:04 AM

[gzwick26]

I am able to make a withdrawal penalty free because I only withdrew the contributions. I was asking if anyone knew how to report that this was only contributions on Taxcut. I am not 59 12/ but don't need to be.. contributions can be withdrawn at any time.

[Bill Presson]

I am able to make a withdrawal penalty free because I only withdrew the contributions. I was asking if anyone knew how to report that this was only contributions on Taxcut. I am not 59 12/ but don't need to be.. contributions can be withdrawn at any time.

That's where you are wrong. To be tax free they still have to be a "qualified distribution".

[gzwick26]

But when you take money out of a Roth IRA, the first dollars you take out are considered to be a return of your regular contributions. You don't have to meet any special tests to receive those dollars free of tax. You can take them out any time, for any reason, without paying tax or penalties.

I am not wrong.

[John G]

Some of folks above either did not understand the circumstances or do not understand the Roth rules.

The original post talked about withdrawing contributions. Subsequent posts by this original author indicated this was from a ROTH account and did not involve a Roth conversion.

Let me refer to IRS Publication 590 on IRAs. Under the Roth topic "Are Distributions Taxable" (page 65 in my 2007 version)... the very first sentence:

"You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s)."

So, if your Roth contributions equaled or exceeded 20K, then you can remove 20K without penalty or tax. There is no 5 year rule that applies. There is not age test. There are no penalties. A contribution can withdrawn at any time, for any reason. (ok, let me say "reluctantly withdrawn", because its not easy to put the same funds back in)

I unfortunately can not solve your software problem. Check how your custodian treated the removed funds. You could say zero for distributions, then attach a letter to your return indicating that you had a Roth transaction but it was exempt from taxation because it was a withdrawal of contributions....in other words a work around for the software.

[jevd]

Some of folks above either did not understand the circumstances or do not understand the Roth rules.

The original post talked about withdrawing contributions. Subsequent posts by this original author indicated this was from a ROTH account and did not involve a Roth conversion.

Let me refer to IRS Publication 590 on IRAs. Under the Roth topic "Are Distributions Taxable" (page 65 in my 2007 version)... the very first sentence:

"You do not include in your gross income qualified distributions or distributions that are a return of your regular contributions from your Roth IRA(s)."

So, if your Roth contributions equaled or exceeded 20K, then you can remove 20K without penalty or tax. There is no 5 year rule that applies. There is not age test. There are no penalties. A contribution can withdrawn at any time, for any reason. (ok, let me say "reluctantly withdrawn", because its not easy to put the same funds back in)

I unfortunately can not solve your software problem. Check how your custodian treated the removed funds. You could say zero for distributions, then attach a letter to your return indicating that you had a Roth transaction but it was exempt from taxation because it was a withdrawal of contributions....in other words a work around for the software.

John G is correct. See instructions for line 15A & 15 B on page 23 of 1040 instx. 1040 Instx The instructions will refer you to form 8606 8606 Instx Form 8606

[gzwick26]

thank you. This isa Roth Ira. I put in $20,000 in contibutions over the years and it was valued at $23,000. I took out the $20,000(contributions) and was just trying to get advice on how to correctly report it. I know that I'm able to take them out at anytime.