Proper Roth distribution reporting

Robkabob1

Hello,

I did a Roth distribution in 2024 that I thought should have been tax free. I retired in 2021 and rolled over my work Roth account and 401k account into a IRA. I’m sure I created the Roth account more than 5 years ago and I was 65 in 2024. My 1099-R for the Roth distribution used a code T. When I enter the 1099-R I’m getting taxed on the Roth distribution. What am I doing wrong?

Robkabob1

Thanks for that information, The link didn't work but I did find the 5498 documents showing my Roth contributions over the years 2016 thru 2021. I passed this information on to Fidelity Investments and they said it was company policy to code all 1099-R, Roth distributions code T for all customers over the age of 59 1/2. Code T, taxable amount not determined, no exceptions. They said they were not tax experts and referred me to contact my tax advisor. I might be moving all my retirement funds out of this investment company. My only work around is to change to code to Q and have all my 5498 forms from 2016 -2021 on hand to prove the required five-year aging. Have anyone else ran into this problem?

kiarab

Reporting retirement income can be confusing and frustrating.

Here is the link again if you would like a transcript: Get Transcript

I did go through a test account to take a look at this. So code T can mean that some of your distributions can be taxable, depending on your basis, etc. In our software, you can enter code T and not have the distribution be taxable. 

Once you have entered the 1099-R and you are back to the screen where the software asks you if you need to enter any more 1099-R forms, you can click on Continue.

The next page should ask you if you contributed to a Roth IRA for 2019 or an earlier year. It also allows you to enter your basis in Roth IRA contributions and your basis in Roth IRA conversion. The software will then calculate the taxable amount (if any) of your distribution.

If it still doesn't appear correct to you, I would recommend contacting customer support so they can take a look at your account.

Robkabob1

Fidelity Investments was no help so far in getting this resolved. They said on Roth distributions with the person over 59 1/2 they always code box 7 with the letter T, no exceptions. They also said if I have further questions to contact my Tax advisor. Not very helpful.

KristineS

Hi Robkabob1,

Thanks for your question and welcome to our Community.

In general, yes, a Roth distribution is tax free. However, distribution Code T on Form 1099-R means your financial institution is unclear if the 5-year holding period has been met. This code makes your distribution taxable.

You may need to check your historical records on when the Roth IRA was opened and provide this to your brokerage/financial institution for a corrected Form 1099-R if appropriate.

I'm also a little concerned by your statement you 'rolled over your work Roth account and 401(k) account into and IRA." A 401(k) can be made up of both a traditional 401(k) as well as a Roth 401(k). And you wouldn't normally roll a Roth account into an IRA account. It's important to know if this is the case.

One is pre-tax savings, the other is after-tax savings. This affects the basis and that is very important to know. Your basis is the amount you contributed over the years.

I would recommend you pause your tax preparation and reconstruct a) when you opened the Roth and b) which accounts did you actually rollover to an IRA.

You can also check Form 5498, issued in May/June of each year. This may help provide some clues for when your Roth IRA started. If you didn't keep a copy of the form or can't find it, you can check your online account at the IRS under "Wage and Income" transcripts. A 10-year history of these particular transcripts can be found there, including Form 5498.

Robkabob1

KristineS,

So no worries on rolling my work Roth. I moved it into a Roth IRA. I’m now pursuing the needed 5 year plus documentation from my company where I retired from. What I’m hearing from Fidelity Investment is they will not issue an updated 1099R when I give them the needed documents for proving 5 years participation. Can I simply enter code Q in place of code T without generating a red flag at the IRS? I would have the needed documentation if requested

TriciaD

Hello Robkabob1,

You can request a transcript from the IRS (https://www.irs.gov/individuals/get-transcriptRoth), for the history of your Roth IRAs.  All of the necessary information should be captured in Forms 5498 and 1099-R issued to you and the IRS for these transactions in your Roth IRAs, but you can corroborate that with information from account statements and tax returns.  Forms 5498 and 1099-R are captured in your Wage & Income transcripts available from the IRS.

The IRS receives a copy of Form 1099-R. They will check the information reported on your 2024 tax return to determine if you have reported the distribution correctly. If the code is incorrect, the payer must be contacted for a corrected 1099-R.

Robkabob1

Worked perfectly now. All good. Thanks for the help!