Roth Distribution shouldn't be taxable

[Margaret CPA in OH]

Client, age 61, received Roth distribution of $5316. Total basis from 1998 and 1999 is $2500. 1099R has code T, exception applies. The whole amount should be nontaxable. ATX refuses to allow efiling with 8606 but when I input distribution and basis, it shows a taxable amount of the difference. What am I doing wrong? She has met all the criteria for no tax as far as I can tell so it must be me. Thanks for help.

[Margaret CPA in OH]

Bumping this up. Anyone? I just don't see the problem and why the 8606 has to be included with the T in the 1099. I've even tried putting 0 in the taxable amount but the software insists on 8606 to efile. But I just don't believe it is taxable. What am I missing? Thanks!

[LindaB]

Code T means the payer doesn't know if the 5 year holding period has been met, which in this case it has since contributions were made in 1998 and 1999. I tried this in a dummy return and get the same thing you described. This is not right but I can't see yet where the problem is. It may be a program error. It seems like with the code T they would check the box 'taxable amount not determined' and you could put zero in the 'taxable amount' box and not need the 8606. If you really need the 8606 there must be someplace on it to indicate how long the taxpayer has had the Roth.

[LindaB]

There's a box on the 1099-R input screen that asks for the first year of the Roth contribution but putting 1998 in that box doesn't get rid of the program wanting the 8606. (In the program it says code T means exception applies, but in the IRS instructions for 1099-R it says code T means don't know if the 5 year holding period has been met)

[Pacun]

No matter what you do, you get the same results. The only time you get a different result is when you change from code T to code Q. In reality, code Q is the correct one.

[Margaret CPA in OH]

Thanks to all. Frankly, I never noticed the 1st year box. What I did just now was input the year there and in Box 5 $2500. That didn't help, either. 8606 is still required to efile and it still figures taxable income on earnings. Grrrrr...

I will see about the client getting a corrected 1099R, I guess. The owe a bit of money already so a little more delay won't hurt. It isn't as if they are expecting a refund.

Thanks again!

[Margaret CPA in OH]

TA DA!!! One last desparate effort = correct results! On Line 19 of 8606, the distribution amount from the 1099R flowed but I just input 0 that there were no "unqualified" distributions. It worked!

Sometimes it really helps to read everything and not take all for granted. Such as my experience with Ohio and piggyback returns. Just because in 2001 Ohio was not allowed to be efiled unless piggybacked and in subsequent years the piggyback option was always the default, I assumed (and you all know how dangerous that can be) that the option to file alone was not available for Ohio. Good to know that over 60 isn't over the bridge - just reaalllly close. Thanks again to all.

[LindaB]

I was just going to tell you the same thing. I looked at the instructions for form 8606, and on page 1 it says that any distribution from a Roth requires a form 8606, part III. Instructions for line 19 say do not include any distributions made on or after age 59 1/2 if you made a contribution (including a conversion) for 2004 or an earlier year. So that tells them that the 5 year holding period is met.