Form 8606 and roth distribution

[JenMO]

TP rec'd 1099 for roth dist. TP is over 591/2 and eligible to take out. Code is "T" it's marked tax amount not determined and total dist. Software says I have to fill out 8606, but don't know how to make roth not taxable. It asks for basis since 1998, rollover basis, conversions. Don't know this, and do I need to? It's a withdrawal from the ROTH, I thought was nontaxable, but don't know how to work the form to make it that way. HELP

[Koss]

Roth Distribution

What software are you using?

BMK

[JenMO]

I use atx software

[Koss]

Roth Distribution

I'm not familiar with ATX. But I do have some thoughts on this...

I don't think Form 8606 is actually required in this case, because, as you have noted, the taxpayer is over age 59 1/2. Form 8606 is used to track the basis in a Roth IRA, which is very important when you take an early distribution, because only the earnings are taxed. But in this case, even if the basis was zero, none of the distribution is taxable. So I don't see the need for Form 8606. ATX may be assuming that the form is necessary because... well, Code T supposedly means "taxable amount not determined," and in order to determine the taxable amount, you need to know the basis, so... use Form 8606.

Put another way, in the logic used by ATX, Code T is triggering an artificial need for Form 8606.

So what's the solution? You can't change the code. IRS regs say that you have to enter exactly what's on the form, in most cases. I don't think this is an exception.

But maybe you don't need to enter the form at all.

I'm not kidding. The distribution is not taxable, and it may not need to be reported anywhere.

Think outside the box. If you were going to do the return by hand, where would you report the distribution? Line 15a, with a zero on line 15b? I don't think so.

Line 15a is for traditional IRA distributions, and for Roth distributions that are non-qualified, and subject to some degree of taxation.

For a qualifying Roth distribution, I don't think you have to report it anywhere on the tax return. The same is true for a qualifying distribution from a Section 529 plan. A distribution reflected on Form 1099-Q that was used for qualifying education expenses does not get reported anywhere on the tax return.

Just delete the Form 1099-R from ATX.

BMK

[Gene V]

jenMO,
Seems like they either put the wrong code on the 1099-R (normal distribution should be code Q), or they don't think your client
qualifies for a normal distribution. You said your client was 591/2 at the time of distribution, however, did your client open the ROTH at least 5 years ago?

[JenMO]

CODE IS T - ROTH DIST WITH EXCEPTION WHEN I DELETE THE 8606, CREATE THE EFILE, ERROR SHOWS I NEED AN 8606. THE ONLY PLACE I CAN SEE ON THE 8606 TO PUT IT ON LINE 19, IT SAYS NON QUALIFIED DIST, BUT IT ISN'T.
pART III SAYS COMPLETE IS YOU TOOK A DISTRIBUTION, WITH EXCEPTIONS. I'M THINKING OF DELETING 1099R AS THE ONLY WAY TO FIX.

[ruthc]

I would follow Burton's response. The Roth is not taxed and doesn't have to be reported so just delete the form 1099. Unfortunately, we try to follow all the rules to the tee, but sometimes we do have to think outside the box which is hard to do sometimes.

[ddoshan]

In our program with Roth distribution code T it does give a diagnostic unless or until you make an entry for the first year of any Roth activity. Access your IRA screen and Roth History basis and make an entry for the first year of any Roth activity, if you can. When this is done in our program the Roth shows up on line 15a with 0 taxable. No 8606 required.
I would not ignore the 1099R.

[ddoshan]

To add to the above. If the distribution was taken prior to having met the 5 year rule then you do have to provide more information via form 8606. Any earnings over and above the Roth basis (contributions) would show up as taxable.

[joanmcq]

And if the taxpayer took the distribution even a day before age 59.5, the same applies. I use ATX too, and track client basis whenever I can. Ask the client how long he's had a Roth, and exactly when the distribution was if this is the year he turned 59.5. If either of these is an issue, you'll have to calculate basis.

[JenMO]

He's over 59 1/2. (not close) do you have to hold the roth 5 years if you are over 591/2 when you take distributions. I thought that was when you were withdrawing principal before 591/2. If you have held 5 years, well over 591/2, is the 8606 necessary? Where would you put the figures?

[ddoshan]

He's over 59 1/2. (not close) do you have to hold the roth 5 years if you are over 591/2 when you take distributions. I thought that was when you were withdrawing principal before 591/2. If you have held 5 years, well over 591/2, is the 8606 necessary? Where would you put the figures?

Did you try accessing the IRA screen in your program and from there access Roth history. There it asks for the first year of any Roth activity. You have to do this otherwise you did end up with problems. If over 5 years and over age then the distribution should show up as mentioned above with zero taxable. I would be surprised if the program doesn't have this.

[Gene V]

He's over 59 1/2. (not close) do you have to hold the roth 5 years if you are over 591/2 when you take distributions. I thought that was when you were withdrawing principal before 591/2.

Yes, you would have to hold the ROTH for 5 years, even if over 59 1/2 for a qualified distribution.
See Pub. 590 page 70-73 especially page 72 for flowchart.