ROTH IRA DISTRIBUTION

[AnnieR]

I haven't dealt with Roth distributions before and I really don't quite understand it. Client,37 yrs old, takes distributions from 2 different funds in his Roth. I have a 1099R with taxable amt not determined and a "J" code. If the distribution is taxable, isn't it being taxed twice? once when deposited and once when it is withdrawn? Any help would be greatly appreciated. Thanks,

AnnieR

[kcjenkins]

If he is only 37, then clearly he's taken an early distribution. If he did not have it in there for 5 years, it's subject to different treatment, if it was in there for 5 years, only the earnings are taxed, not his contribution.

[LindaB]

You need to find out from the client the amount of original contributions to the Roth, and if there were any conversions, the amount and the date. You also need to know if there have been any other distributions from the Roth. There are certain ordering rules for distributions from a Roth, first origianl contributions, then conversions, then earnings. Use part III of form 8606 to determine if any is taxable.

[RitaB]

...if it was in there for 5 years, only the earnings are taxed, not his contribution.

I don't think the original contribution is ever taxed when withdrawn. The contributions have never been deducted, so the tax has been paid.

I believe the 5 years is only important if he opened the account at age 58, let's say, and then deducted at age 60. The contributions are not taxed (never are), but in a case like I am throwing out here, the earnings WOULD be taxed (and penalized) because the five year condition has not been met even though the age 59.5 has been met.

In the poster's client's case, the earnings are taxed and penalized because the age condition is not met.

[AnnieR]

Thank you, I have a call in to the client already. He already gave me his statements, so I have some of the information. Thanks to all of you for your great help.

AnnieR

[kcjenkins]

Sorry if my post was not clear. I meant that the 'earnings' would not be penalized if it was in there 5 years, just taxed. Contributions are not ever taxed.

[RitaB]

Sorry if my post was not clear. I meant that the 'earnings' would not be penalized if it was in there 5 years, just taxed. Contributions are not ever taxed.

Hey, if I had a nickel for everytime I wasn't clear, I'd be riding around town goofing off like my EIC clients appear to be doing today. ;-)