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No way to indicate Roth IRA withdrawal is from previous contributions

bgrt

If you withdrawal from a Roth IRA but the amount was from previous IRA contributions, then the withdrawal is not taxable and not penalized. My brokerage has no way of knowing how much I've contributed previously in all my prior tax years, so they always indicate the withdrawal as 100% taxable even if it isn't. TurboTax has a way to mark the distribution as non-taxable but FreetaxUSA does not.

On the other hand, the 1099-R does have "taxable amount not determined" checked, so can I just manually fix the taxable amount to 0? I don't see any other way to fix this.

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DaveT

https://community.freetaxusa.com/discussion/comment/4504#Comment_4504

Are you sure that this is a distribution from a Roth IRA? Does your 1099-R actually have a checkmark for IRA? That is only used for Traditional IRA distributions, not Roth IRAs. Also, a Roth IRA would have a distribution code J if you are undet age 59.5.

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JMSSGV

What is the distribution code in Box 7?

bgrt

Code is 2

https://community.freetaxusa.com/discussion/comment/4482#Comment_4482

TurboTax fills out a form 8606. In the current version, lines 19-25 calculates whether your distribution is taxable or not based on your previous contributions. Maybe FreetaxUSA does not support this?

JMSSGV

If the withdrawal from the IRA (i.e., the total amount in Box 1) met all of the conditions for being non-taxable (which is implied by the '2' - 'exception applies') then you can enter zero in the box 2a field.

bgrt

https://community.freetaxusa.com/discussion/comment/4485#Comment_4485

Helpful, thanks!

bgrt

Unfortunately it didn't work. Making the taxable amount 0 manually still did not eliminate the gross amount from the taxable portion.

DaveT

The software should have asked for the "basis" which is the total of all previous contributions less any previous withdrawals. As long as your current withdrawal does not exceed your remaining basis, the amount shown on Line 4b should be 0. You can also check Part III of Form 8606 to verify the correct taxable amount.

bgrt

I don't see that screen. When I add a 1099-R, I check box 2b (taxable amount not determined), enter distribution code 2, check IRA / SEP / SIMPLE, go back and enter 0 for taxable amount. Then it asks the following questions

Is this an inherited IRA? - No
Is this a Roth conversion - No
Is this a rollover? - No
Click continue
Has xxxxx ever had a nondeductible traditional IRA contribution on any prior year tax return? - No
Did you take a disaster distribution? - No
Then takes me back to the Income summary screen.

No question for basis information :(

DaveT

https://community.freetaxusa.com/discussion/comment/4504#Comment_4504

bgrt

Ah you're right, I think this is a traditional IRA. I have a traditional and Roth in the same brokerage hence the confusion.

As a test, I got a 1099-R from a proper Roth distribution and it was coded J with IRA not checked. If I plug in those entries, the software does indeed ask for my basis after that, so it looks like it's handling this scenario properly. Thank you!