Roth return of contributions and IRS reporting forms

[Guest chuck owen]

I converted my IRA into Roth IRA in 1998 using the 4 year income tax payment schedule. I am not 59 ½ and the funds have not been held by Fidelity for 5 years. My questions concern the return of my already taxed contributions (not earnings):

[i am asking these questions because I need the funds and my son will be applying for college financial aid (fafsa government form) which uses the formula concerning: “Untaxed portions of pensions from IRS Form 1040-lines (15a minus 15b) + (16a minus 16b)”]

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What IRS tax form will Fidelity use to show my withdrawal of taxed contributions?

On the 1040, what line/number/letter will these withdrawals be posted?

Thanks.

[wmyer]

Fidelity will report the withdrawal on a 1099-R with distribution code J (distribution from a Roth IRA). You will need to report the total distribution on line 15a of the 1040, and the taxable amount on line 15b. You will also probably have to pay a 10% penalty, which you would report on IRS Form 5329. For more information, see IRS Publication 590 (the section entitled "Are Distributions From My Roth IRA Taxable?") which you can download from http://www.irs.ustreas.gov/prod/forms_pubs/forms.html and of course, consult your tax advisor.

[John G]

Before you take the route mentioned above an incur taxes, incur penalties, and shrink your tax shelter.... consider a couple of other options. You may be able to get a very attractive home equity loan or a bridge loan (to cover a specific waiting period). Or, you might consider refinancing your home at today's low interest rates.

You may also try an negotiate a lower rate with the college or university. Strangely enough, some institutions are "flexible" about the terms.

It is very hard to funnel money into a tax shelter because of the max contributions and annual income qualifications. This is why I suggest that you thoroughly review all your options before you act. Good luck.