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Taxable portion of early distribution from Roth

Level 2

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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Level 11
Level 11

I accept cookies 😁

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21 Replies 21
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.

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Level 2

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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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 11
Level 11

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.

Level 2

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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Level 10

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.

Level 2

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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Level 11
Level 11

@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

Level 2

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

Level 11
Level 11

You are welcome 😁

 

Level 2

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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Level 11
Level 11

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

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Level 2

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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Level 2

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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Level 11
Level 11

You can't remove the J

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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Level 15

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

This week's special - free amended tax returns to anybody bringing in a signed copy of the law providing tax breaks for unemployment.
Level 11
Level 11

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

Level 2

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!

Level 11
Level 11

I accept cookies 😁

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Level 7

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

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