Roth IRA Distribution

[Dave T]

Tax payer is 64 years old, began contributing to a Roth from 1998 until 2002. Total contributions approx. $ 1,400.

In 2010 she closes out the account and receives approx. $ 1,650 and of course a 1099R at year end showing the distribution and taxable amount not determined, and in Box 7 a distribution code T - Roth Distribtion exception applies.

On checking the return it says an 8606 must be completed and when I complete Part IV it shows approx. $ 250.00 as taxable ( $ 1650 - 1400).

This doesn't seem right and I'm wondering what I might be doing wrong.

Any thoughts?

Thanks

Dave T

[Yardley CPA]

I don't believe any of the distribution is taxable. She meets all the criteria, age, account open for more than 5 years. So I would say no part of the distribution is taxable.

[Dave T]

I agree that it shouldn't be taxable but I'm wondering why ATX requires the 8606 and why it is computing part of it as taxable?

Thanks Again

Dave T

[RitaB]

My totally off the cuff opinion is that the code is incorrect and Form 8606 is looking for you to enter an explanation of the exception. Well, you don't need an explanation of an exception, like higher education or medical expenses, cause none of the distribution is taxable. Believe the code should have been Q. If there's no way to explain this is Part IV, you may have to attach a statement explaining.

[Margaret CPA in OH]

Coincidentally I had the same issue just yesterday. I realized on Part IV of 8606 the distribution automatically filled in the amount, in a blue field, on line 26. I deleted it because the distribution was qualified, input the Roth basis on line 29 and have no messages for either the Check return or efile prep.

[RitaB]

Well, there you go. We are so fortunate to have each other, guys. Can't tell you how much I appreciate this board.

[Pacun]

We should make a donation to this board while we are making some money to help with the electrical bill.

[Dave T]

Coincidentally I had the same issue just yesterday. I realized on Part IV of 8606 the distribution automatically filled in the amount, in a blue field, on line 26. I deleted it because the distribution was qualified, input the Roth basis on line 29 and have no messages for either the Check return or efile prep.

Margaret

Thank you for your response to my situation which was identical to yours. Your solution was right on. The distribution was qualified and therefore no 8606 required and not a problem to create the e-file.

Thanks Again

Dave T

[Margaret CPA in OH]

You are most welcome, Dave T. I certainly get more from folks here than I provide so am happy when something works out.

[Janitor Bob]

I have the exact same issue right now ....because of this post and the replies...I did not even need to post my problem....I love this board and all of you!

[Janitor Bob]

But why would the sender of the 1099-R put code T in box 7 instead of Q? My client was 60 years old so the withdrawal from the Roth should be qualified...correct?

[Kea]

Maybe she didn't meet the 5 year holding period?

Or, maybe they got it wrong?

Why did I get a code 4G for a death benefit rolled over to a Roth? I would think the G should have been a 2. (I haven't yet checked to see if the software will let me put the full amount in the taxable box. -- I guess I'd better call & get it re-issued.)

[RitaB]

Margaret

Thank you for your response to my situation which was identical to yours. Your solution was right on. The distribution was qualified and therefore no 8606 required and not a problem to create the e-file.

Thanks Again

Dave T

Dave, I don't think she deleted the Form 8606, but she deleted the ENTRY on line 26. And, she entered the basis in the ROTH on line 29.

[Janitor Bob]

Maybe she didn't meet the 5 year holding period?

Or, maybe they got it wrong?

Why did I get a code 4G for a death benefit rolled over to a Roth? I would think the G should have been a 2. (I haven't yet checked to see if the software will let me put the full amount in the taxable box. -- I guess I'd better call & get it re-issued.)

I just found out that client put $18,000 into Roth IRA in 2009and took out $2,500 in 2010. She is age 60, but since it has not been 5 years, I understand the "T" instead of "Q".....so this would be taxable, correct? Or since her basis is more than $2,500.00 would it not be taxable?

[Margaret CPA in OH]

RitaB, you are correct. Dave T, I did include the 8606 with exactly the entries repeated by RitaB. Sorry I didn't catch your misunderstanding on the reply. However, it seems JB's situation is different.

[RitaB]

I just found out that client put $18,000 into Roth IRA in 2009and took out $2,500 in 2010. She is age 60, but since it has not been 5 years, I understand the "T" instead of "Q".....so this would be taxable, correct? Or since her basis is more than $2,500.00 would it not be taxable?

Contributions to ROTH IRA's are withdrawn before earnings. So, no, this is a return of contributions and not taxable.

The issuers only know how to sell investments, not enter correct codes. Sorry, that was uncalled for. Sorry. Sorry. Sorry.

I am really grouchy. Just had a noncustodial parent (client is custodial parent) in here arguing with me about taxes.

Uh, YOU were in jail, your daughter did not live with you...

[Dave T]

Dave, I don't think she deleted the Form 8606, but she deleted the ENTRY on line 26. And, she entered the basis in the ROTH on line 29.

Yes, you're correct. I should have said I made the correction to the 8606 and that cleared the distribution from being taxable as it was a qualified distribution.

The 8606 was still created as you state.

Thanks

Dave T