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Taxable portion of early distribution from Roth

PChin
Level 3

I have a taxpayer that has had a Roth for many years.  Recently the brokerage house changed so the new one does not have the basis of the contributions.  He received an early distribution in 2020. The 1099 reflects Taxable amount unknown.  How can I reflect the basis so the full amount will not be taxable and not subject to the 10% penalty.

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Terry53029
Level 14
Level 14

I accept cookies 😁

View solution in original post

21 Comments 21
IRonMaN
Level 15

That's easy ------------------- just have him come up with his basis.  Ok, maybe it's not that easy, but that is the only way to make it avoid potential tax.


Slava Ukraini!
qbteachmt
Level 15

Basis would be contributions. That means statements, transactions listings, and/or a transcript from the IRS for 5498 would all show the deposit amounts for each year.

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"Level Up" is a gaming function, not a real life function.
Terry53029
Level 14
Level 14

You need to know the basis, and your client has to come up with that info. The distribution if nonqualified has ordering rules: basis first, then earnings that is why you need basis.

PChin
Level 3

I understand the distribution rules but ProSeries is throwing the entire amount in taxable.  How do I record only the taxable amount in the income column.

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dkh
Level 15

Note the common theme.....have the CLIENT determine the basis.   Let them spend the time chasing the info.   Sometimes my clients think that it's my responsibility to do the leg work....Nope.

PChin
Level 3

I know the basis.  I am trying to figure out how to adjust the taxable amount and the amount subject to the early withdrawal penalty.  

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PChin
Level 3

I am just trying to figure out how to enter this in Pro Series so the full amount, only the taxable amount is subject to the tax and penalty.

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Terry53029
Level 14
Level 14

@PChin you must have taken @IRonMaN mind reading class, as you now know the basis. Just scroll down on the 1099R worksheet, and there is a place to enter basis

PChin
Level 3

Dang!!!!  I have spent hours trying to find that - THANK YOU!

Terry53029
Level 14
Level 14

You are welcome 😁

 

PChin
Level 3

Actually - that did not affect the taxable amount sigh...  It still shows the full distribution as taxable and subject to penalty.  Aaugh!

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Terry53029
Level 14
Level 14

Is there a code J in box 7 and did you check the roth IRA box. it worked for me

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PChin
Level 3

Yes box 7 - J and Roth IRA box checked.  I even entered the taxable amount with an explanation in 2(a).  

Here is my scenario.  $7,500 distribution but the brokerage indicated "Taxable Amount not determined".  Basis is $5,634 and taxable it $1,936.  On page 1 of the 1040 it shows $7,500 distributed and $7,500 taxable and is also calculating $750 penalty.

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PChin
Level 3

I actually redid the whole thing.  If I enter the taxable amount $1,936 without the box J, it is reflected correctly everywhere, but as soon as I check box 7 J, then it taxes the whole distribution

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Terry53029
Level 14
Level 14

When you open the basis worksheet you check the box 22 yes, basis line 23, line 50 check yes. It sure work 

Terry53029
Level 14
Level 14

You can't remove the J

PChin
Level 3

Hallelujah!!!!!  OMG!  I have literally tried to work this out for HOURS!  Learned my lesson!  Just ask Terry!  You don't know how much I appreciate this!

Terry53029
Level 14
Level 14

I accept cookies 😁

qbteachmt
Level 15

Have you looked at form 8606?

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"Level Up" is a gaming function, not a real life function.
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IRonMaN
Level 15

Note to self ------------------------ when you can't come up with a good answer, questions can easily be solved by begging for cookies.  🍪🍪🍪


Slava Ukraini!
PATAX
Level 15

I agree....perhaps brokerage firms can help out also...

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