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How do I file a Roth IRA withdrawal of contributions?

Asked by: jhuntres 665 views YA Discussion

I made a withdrawal from a Roth IRA account that was only from prior contributions. For example, I contributed $ 3000 in each year from 2003 – 2008. I withdrew $ 8000 from the account in 2012, leaving 10,000 left of contributions in the account. How do I file this on my 2012 taxes? I recieved a 1099-R from the financial institution for the money that was withdrew. There is a J in box 7. When I enter this item into the tax software (TaxAct and HRblock) it is taxing me on the withdrawal.

Yirmiyahu, there’s no information on the form 1099-R as to how much of the distribution was from earnings. Also, I don’t find anywhere in P590 where it discusses that a withdrawal from a roth ira is considered equal parts of contributions and earnings from the account. Reasonably, anyone would first withdrawal any contributions to the account and leave the earnings in the account until age eligible.

3 Answers

  1. Yirmiyahu on Apr 16, 2013 Reply

    Code J = “Roth IRA”

    When withdrawing from a Roth IRA, you don’t withdraw the contributions alone. You withdraw a portion of the earnings as well. In your case, here’s what appears to be happening.

    Total Contributions (2003 to 2008) = 15,000
    Value of Account when withdrew = 18,000 (because you said you withdrew 8,000 and left 10,000 remaining).

    Therefore, there were earnings of 3,000 in total.

    3,000 / 15,000 = 20%

    So, 20% of your 8,000 withdrawal is “earnings” and 80% is original contributions. In other words you withdrew 8,000 as follows:

    6,400 of original contributions
    1,600 of earnings

    Balance remaining in the account is 10,000, allocated as follows:

    8,600 of original contributions
    1,400 of earnings

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  2. RetirementGuru on Apr 16, 2013 Reply

    You are correct. The ordering rule for Roth IRA withdrawals is contributions come out first and, they are not subject to tax. I don’t use TaxAct of HR Block software so I don’t know what the problem is. Hmmm. Your distribution appears in Box 1. It should show $ 0.00 in Box 2; Taxable Amount. Is that right? If not, there should be a way to override the “taxable” amount that transfers to your Form 1040.

    Perhaps you can call the vendor. I believe they offer free tax assistance to customers.

    Hope my answer was clear and earns your Best Answer vote!

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  3. Bobbie on Apr 16, 2013 Reply

    Contact the issuer payer of the amounts and ask them if it is correct.
    J—Early distribution from a Roth IRA, no known exception (in most cases, under age 59½).

    Ordering Rules for Distributions
    What Are Qualified Distributions?

    A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.
    It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and
    The payment or distribution is:
    Made on or after the date you reach age 59½,
    Made because you are disabled (defined earlier),
    Made to a beneficiary or to your estate after your death, or
    One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $ 10,000 lifetime limit).
    Additional Tax on Early Distributions
    If you receive a distribution that is not a qualified distribution, you may have to pay the 10% additional tax on early distributions as explained in the following paragraphs.
    Ordering Rules for Distributions

    If you receive a distribution from your Roth IRA that is not a qualified distribution, part of it may be taxable. There is a set order in which contributions (including conversion contributions and rollover contributions from qualified retirement plans) and earnings are considered to be distributed from your Roth IRA.
    Hope that you find the above enclosed information useful. 04/16/2013

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