Roth IRA distribution

[neilbrink]

My 75 yr old client had a Roth IRA distribution in 2013 that shows Code T on the form, but ATX is pulling it over to include in income. What am I missing?

[Jack from Ohio]

What are you putting in the taxable amount box? Should be $0 unless he is taking out more than his basis.

[David1980]

8606 line 22.

[joanmcq]

Was the custodian Pershing? One of the forums I'm on on Linked in has this same question; the code should be Q, not T. If the client is 75, I'll assume the account was open at least 5 years?

The poster on linked said Pershing told her 'they always use code T'. Which is horsehockey for the broker if the account has been with that broker for at least 5 years.

[jklcpa]

I had one picked up today that had a Roth open for more than 5 years, 1099R came through with "T" also. Cambridge Investments.

My husband had one last year from Vanguard that was reported correctly with code "Q". Account had been open about 15 years.

[Abby Normal]

And the 5 year rule is only for Roth conversions, but older people have been being advised to do these conversions to save their heirs taxes.

[JohnH]

Roth conversions also provide a way to avoid RMD's after age 70-1/2 on the amount converted. In some cases that can provide some marginal benefit, assuming the person has a reasonable expectation of living a long time.

If the person has retirement income high enough to assume they will always be in the 15% marginal bracket or above, and if their current income doesn't max out the 15% bracket, then a Roth conversion sufficient to use up the 15%bracket is virtually a no-brainer. It guards against future increases in the tax rate AND eliminates the RMD issue for the converted amounts.