Withdrew contributions from Roth IRA early, how to fill this out in the software?

hellotaxhelpplease

Hello,

So I contributed from 2019-2023 into my Roth IRA and this year I had to take out all the contributions and then a bit more and I am not yet 59.5.

I uploaded my 1099 R but am not sure where to put how much I contributed in previous years so that I only get taxed and penalized for the amount above the contributions.

Questions:

1. Please let me know where I should fill out the contributions?
2. Do I have to fill out another form for the extra amount that needs to be taxed and penalized?
3. Where do I do this in the software? I read something about form 8606, is this auto-generated in the software?

Thank you!

Austyn

Hi hellotaxhelpplease,

Here's how this works in the software and what to expect.

Since you took an early, non-qualified Roth IRA distribution, the software will automatically generate Form 8606 (Part III) to figure out how much of your withdrawal is taxable. You're right that only the amount above your contributions (the earnings portion) is subject to income tax and the 10% early withdrawal penalty.

Here's what to do:

1. Enter the 1099-R: Go to Income > Retirement Income > 1099-R (if you haven't already entered it, enter it there). Make sure the distribution code on the 1099-R is correct, (code J is typically used for early Roth IRA distributions.)

2. After entering the 1099-R, the software will ask follow-up questions about your Roth IRA. You'll be prompted to enter your total Roth IRA basis, which is the total of all your regular contributions from 1998 through the current year (in your case, the sum of everything you contributed from 2019-2023). This is where you tell the software how much you put in over the years.

3. The software will use that basis figure to calculate the taxable portion on Form 8606 Part III. Only the earnings above your contributions will be taxable.

4. For the 10% early withdrawal penalty on those earnings, the software will automatically generate Form 5329 as well. You don't need to fill that out separately -- it's handled behind the scenes.

So to directly answer your questions: you enter your prior contributions as your "Roth IRA basis" during the 1099-R interview, Form 8606 is auto-generated by the software, and you don't need to manually add any separate forms.