Nonqualified distribution of Roth

[arlo]

Nonqualified distribution of Roth

Thanks for the help. I just wanted to get it correct and your help has helped me do that.

[RitaB]

Just find out his contributions

I find out the client has only contributed for four year.


So he does not meet the 59 1/2 rule or the 5 year rule. Does that change anything?

Not if he's only withdrawing contributions. Did he contribute at least 2,000 total? If so, the 2,000 withdrawal is not taxable. Unless he's mixed up Traditional IRA conversions with Ordinary Joe ROTH Contributions and made a mess as TaxGuyBill indicated.

https://investor.vanguard.com/ira/roth-vs-traditional-ira?WT.srch=1&cmpgn=PS:RE

[arlo]

Nonqualified distribution of roth

I find out the client has only contributed for four year.


So he does not meet the 59 1/2 rule or the 5 year rule. Does that change anything?

[RitaB]

Agree

Agree, with a ROTH that has always been a ROTH, contributions are withdrawn first, and they are not taxable ever. If he's been contributing for five years, this is probably your situation.

[TaxGuyBill]

You enter the basis of the Roth. In other words, how much did the taxpayer initially contribute to the Roth (minus any subsequent distributions)?

If it was at least $2000, there is no tax and no penalty.

If it was less than $2000, then taxes and penalty apply to the amount over basis.

Is any of the Roth account from a conversion of a Traditional IRA? If so, after the ordering rules are applied, the withdrawal of the converted amounts (with 5 years) are subject to the 10% penalty.
https://www.irs.gov/publications/p59...link1000231071

[arlo]

Person is under 59 1/2 contributed to roth for more then five years.
He takes a $2000 distribution. Get a 1099 that says it is a nonqualified distribution.
form 8606 shows the distribution and ask for the cost. Do I show the cost as $2000.?
since he has made the contributions with after tax money. If so there is no income.
Is there a penalty because of the 59 1/2 rule? or is the 2000 taxable and penalty applies?
Sorry I am not up on Roth stuff.