Roth Distribution Code

[Vlad401k]

The participant is over 59 1/2, but has not met the 5 year rule for Roth distributions. So, earnings are taxable. Should code "B" alone be used or are codes "B" and "7" used together for this distribution?

[Tom Poje]

well, the 1099R instructions says you can use code 7 with B
more importantly is the new box 11, which will indicate that the 5 year period was not met.

Box 11. 1st Year of Desig. Roth Contrib.
Enter the first year of the 5-taxable-year period. This is the
year in which the designated Roth account was first
established by the recipient.

[Vlad401k]

Thanks Tom.

But do you know if it's mandatory to use code B and 7 together when the participant is over 59 1/2. Could you just use code B by itself?

[Tom Poje]

well, the example from the instructions only uses code B.

Examples. Participant A received a nonqualified
distribution of $5,000 from the participant's designated
Roth account. Immediately before the distribution, the
participant's account balance was $10,000, consisting of
$9,400 of designated Roth contributions and $600 of
earnings. The taxable amount of the $5,000 distribution is
$300 ($600/$10,000 x $5,000). The nontaxable portion of
the distribution is $4,700 ($9,400/$10,000 x $5,000). The
issuer would report on Form 1099-R:
Box 1, $5,000 as the gross distribution;
Box 2a, $300 as the taxable amount;
Box 4, $60 ($300 x 20%) as the withholding on the
earnings portion of the distribution;
Box 5, $4,700 as the designated Roth contribution
basis (nontaxable amount);
Box 7, Code B; and
The first year of the 5-taxable-year period in box 11.

[pmacduff]

ok -my head is swimming from these 1099-R codes. I have a participant who met the 5 year waiting period for his roth account but took the distribution in cash in 2014. Is the roth portion 1099-R code B that I should use? I realize I will be putting the first year of the 5 year period (which was 2007 BTW) into Box 11, I just don't know what goes into Box 7.....

thanks in advance

I think may have the answer now as this participant is NOT 59 1/2 yet.

So it really isn't a qualified distribution, correct?

In that case I would use Code B1?

[Belgarath]

I think yes in your "normal" distribution situations. But there could be others - for example, a "2" if the person terminated employment at 55.

[pmacduff]

Thanks Belgarath...participant is only 50

I want to be sure I understand - he will have to pay the 10% excise tax but not ordinary income tax on the earnings? Or is he still on the hook for the tax on the earnings as well even though the year of first contribution was more than 5 years ago because he isn't 59 1/2?

[Lou S.]

Thanks Belgarath...participant is only 50

I want to be sure I understand - he will have to pay the 10% excise tax but not ordinary income tax on the earnings? Or is he still on the hook for the tax on the earnings as well even though the year of first contribution was more than 5 years ago because he isn't 59 1/2?

Basis recovery is tax free. Distribution is NOT eligible ROTH distribution because part is not 59 1/2 so the earnings are taxed as ordinary income + 10% penalty (unless one of the exceptions to 10% penalty applies).

[pmacduff]

Ok - so the rule is 5+ years and 59 1/2 - it doesn't matter that he made his first roth contribution 5+ years ago if he is under 59 1/2?

and my 1099-R Box 7 code is B1 with 2007 in box 11

things were much simpler in the pre-tax days....sigh