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Roth cost basis / distribution being incorrectly taxed

Forum|Forum|6 years ago
June 1, 2019
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I have received a 1099 and took a full distribution on my roth ira. I have tracked my cost basis over the years on form 8606. I took a 27k non qualified distribution. My basis is 25500.00. Basic knowledge would tell me that I will pay the penalty/tax on the amount over the basis; however, turbo tax keeps calculating the full distribution as taxable. I did go through the screens and enter the cost basis, but it is still trying to tax me on the entire 27k as opposed to 1500.00 (amount over cost basis/contributions). I also rolled over a roth 401k into a roth ira. I have my contributions for this as well. My other question is, can I add this to my basis as well? At that very least, will someone please tell me how to find the correct area so that the software will realize that my roth distribution is not fully taxable? You think it would subtract my basis from the distribution and tax me on the amount above the basis. Sounds simple, but this software is making it difficult.

TurboTax Premier Online

Best answer by dmertz

You'll want to confirm that the code in box 7 of your Form 1099-R is correct. A regular distribution from your Roth IRA that is potentially taxable will have code J or T in box 7.

It seems that you have already done so, but make sure that you click the Continue button on the Your 1099-R Entries page to reach the Enter Prior Year Roth Contributions page where you must enter your Roth IRA contribution basis from years before 2015. Current year contributions will be handled automatically when entered as a new contribution for 2015.

The basis that you had in Roth 401(k) contributions when you rolled the money over to a Roth IRA transfers to the Roth IRA. This amount will have been shown in box 5 of the From 1099-R reporting the distribution from the Roth 401(k). If this rollover from the Roth 401(k) occurred in a year before 2015, include the transferred basis when TurboTax asks you to Enter Prior Year Roth Contributions. If the rollover from the Roth 401(k) occurred in 2015, the amount of transferred basis will automatically be recorded by TurboTax.

Note that Form 8606 has nothing to do with tracking basis in Roth IRAs. The only basis it tracks is basis in nondeductible contributions in traditional IRAs. Tracking Roth IRA basis is the Roth IRA owner's responsibility (with the help of TurboTax).

D

dmertzAnswer

You'll want to confirm that the code in box 7 of your Form 1099-R is correct. A regular distribution from your Roth IRA that is potentially taxable will have code J or T in box 7.

It seems that you have already done so, but make sure that you click the Continue button on the Your 1099-R Entries page to reach the Enter Prior Year Roth Contributions page where you must enter your Roth IRA contribution basis from years before 2015. Current year contributions will be handled automatically when entered as a new contribution for 2015.

The basis that you had in Roth 401(k) contributions when you rolled the money over to a Roth IRA transfers to the Roth IRA. This amount will have been shown in box 5 of the From 1099-R reporting the distribution from the Roth 401(k). If this rollover from the Roth 401(k) occurred in a year before 2015, include the transferred basis when TurboTax asks you to Enter Prior Year Roth Contributions. If the rollover from the Roth 401(k) occurred in 2015, the amount of transferred basis will automatically be recorded by TurboTax.

Note that Form 8606 has nothing to do with tracking basis in Roth IRAs. The only basis it tracks is basis in nondeductible contributions in traditional IRAs. Tracking Roth IRA basis is the Roth IRA owner's responsibility (with the help of TurboTax).

1

186kmph

I believe this response is incorrect, the total non deductible basis of "all" previous back-door Roth contributions are to be additive and entered on line 24 in 8606. There appears to be an inability to update this basis in the turbo-tax 2017 version I am using. You can review the IRS instruction for Line 24 on 8606 for more details.