How to report 1099-R Roth IRA distribution correctly?
Withdrew all $23,000 from my Roth IRA in 2023 due to losing employment.
The Roth account was funded in 2021 from an QRP rollover. No other contributions were made.
Received 1099-R from my bank this year, code “J”. No taxes were taken out (taxable amount not determined).
While reporting, it brings me to a section for “Roth IRA/SEP/Simple Basis” and asks for “basis in Roth IRA contributions” and/or “basis in Roth IRA conversions”.
Is that referring to the ENTIRE history of the Roth IRA account, or just 2023? Would I enter the full $23,000 that was initially rolled into the Roth to open then account in 2021? Or leave it blank since no contributions or conversions happened in 2023?
The next prompt is then “Did you make any conversions from a traditional IRA or qualified retirement plan to a Roth IRA before 2023?”
The simple answer to that is- yes.
Then it asks me to enter the basis in Roth IRA conversions made before 2023. Would my basis in conversions be the entire $23,000 that was rolled into the Roth when it was initially funded in 2021? And would that fall under “Non-Taxable Portion” since the money in the Roth was post-tax?
Comments
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Hi Dusty19! I'd like to help you get this Roth distribution reported correctly. First, do you mind if I clarify the situation? You mentioned that you had a Qualified Retirement Plan (QRP), such as a 401(k) or a pension plan. Was your QRP a traditional or a Roth account?
Most QRPs are traditional (not funded with after-tax dollars). If it was traditional, here are some things to keep in mind:
- A traditional QRP is funded with pretax income, meaning you contribute money before paying taxes on it. Taxes are deferred until you withdraw the funds during retirement.
- In contrast, a Roth IRA is funded with post-tax dollars, where you pay taxes upfront before depositing the money. Withdrawals from a Roth IRA are tax-free.
When you roll over a traditional QRP into a Roth IRA, you generally pay income taxes on the rollover amount in the year of the switch. The total transferred amount will be taxed at your ordinary income rate. This gives you basis in the Roth IRA. Did you pay taxes on the QRP distribution in 2021 when you made the conversion? That would generally show on line 5b of your 2021 Form 1040.
When it comes to entering the 1099-R information in the software, you are asked about your basis so that we can determine the taxable amount of your distribution. Those questions are asking about the entire history of the Roth IRA and not just your 2023 transactions. Roth IRA contributions are post-tax dollar amounts that you contributed directly to the Roth IRA account, whereas Roth IRA conversions are amounts that were held in a non-Roth IRA account and moved into a Roth IRA.
If you had a traditional QRP that was rolled into a Roth IRA, and you paid taxes on the QRP distribution at the time of the rollover, then you would generally have basis from a Roth IRA conversion and would want to enter the applicable amount in the boxes provided for that. On the other hand, if you didn't pay taxes on the QRP distribution at the time of the rollover, then you may not have basis in the Roth IRA.
You can click on the little blue question marks in the software if you need further clarification regarding what is considered the 'Taxable Portion' vs the 'Non-Taxable Portion.'
I hope this helps to clarify things. Keep in mind that if you made an early withdrawal, as the code J on your 1099-R suggests, you will likely incur a 10% penalty.
