Discussion:Roth IRA distribution
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Discussion Forum Index --> Tax Questions --> Roth IRA distribution
| 30 March 2006 | |
| I think I have the answer to this question, but just want to double check. If an individual takes a distribution from a Roth IRA without any of the qualifying reasons for a distribution, it is fully taxable, correct? I assume the tax software will automatically calculate the 10% penalty. I use Lacerte. | |
| 30 March 2006 | |
| "Fully taxable", no. Only the increase over the amount invested will be taxable and subject to early w/d penalties. | |
| 30 March 2006 | |
| SKQ9545, I will assume that your client is under 59 1/2 and he is not a first time homebuyer. The basis in the Roth IRA will be distribute first. Therefore, if the distribution is less than the total basis in the account, there will be distribution will not be subject to either tax or penalty. | |
| 30 March 2006 | |
| Remember, it's a Roth, it's AFTER tax...only the gains are an issue, and only if under 59 1/2 and less than five years in the Roth... | |
| 30 March 2006 | |
| Also if distribution is less than basis will be loss on Sch A subject to 2% | |
| 30 March 2006 | |
| The individual is under 59 1/2. With the information that I have at this time, I believe the amount of the distribution is the amount that was originally invested. The code is Code J, which says report on form 1040, 8606 and see 5329. CCH says qualified distributions are not taxable. Pre-retirementliquidty - amounts may be withdrawn from a Roth IRA at any time. Withdrawals that are not qualified are tax free up to the amount of the regular after-tax contributions to the account. Is this what you were saying that the amount you originally contributed is not taxable? | |
| 31 March 2006 | |
| One question for the pros - I thought you had to have an open account for 5 years for there to be no penalty on the amount you deposited? If that not correct?
Dusty | |
| 31 March 2006 | |
| The five years has nothing to do with a return of your own money put in. That is alway always free. Gear Up training...LOL..The five years has to do with whether the gains will be penalized or not... | |
| 31 March 2006 | |
| I finally found some documentation from a Jennings seminar that I took and it is written in "plain" English. Withdrawals from a Roth IRA may be withdrawn at any time without tax or penalty. Earnings are taxable unless the taxpayer has left the money in the account for more than 5 years from the date of the first deposit and the taxpayer is over age 59 1/2 or the taxpayer is disable or deceased or the taxpayer uses the oney for a first time home purchase. | |
| 31 March 2006 | |
| I'm switching over to Bob Jennings for the 1040, he's good, and an ex-Gear Up guy. Will still keep Gear Up for the Biz Entities since the seminars are still manageable in size and just to keep my toes in their thinking... | |
Chris2lane (talk|edits) said: | 31 March 2006 |
| JR, I remember Bob Jennings from the Gear Up days. He was their best speaker. I was saddened to find out at our last seminar that he wasn't with them anymore. Glad to hear he is still teaching. | |
| 1 April 2007 | |
| I am having trouble figuring out exactly how to report the following on the 2006 1040:
An individual made a $4,000 contribution to a Roth IRA, then had capital gains that put him over the income limit. (He was also a participant in a qualified plan, so couldn't just recharacterize the contribution.) He withdrew the same number of mutual fund shares in 2007, but the value of the shares had fallen. Should this be shown anywhere on the 2006 return? The loss isn't enough to survive the 2% test, but I didn't find the authority for the deduction on Sch. A mentioned above, so would appreciate knowing that for future reference. Had there been a gain, which is taxable in 2006 even though not withdrawn until 2007, exactly how would this be reported on the 1040? Thanks. | |
| 23 October 2007 | |
| Above Skq9545 said "Withdrawals from a Roth IRA may be withdrawn at any time without tax or penalty. Earnings are taxable unless the taxpayer has left the money in the account for more than 5 years from the date of the first deposit and the taxpayer is over age 59 1/2 or the taxpayer is disable or deceased or the taxpayer uses the oney for a first time home purchase."
My question is do you need to allocate between total contributions and earnings or can you say that the amount distributed is from prior contributions first (assuming that the amount of the distribution is < or = the total amount contributed? Thanks in advance | |
Death&Taxes (talk|edits) said: | 23 October 2007 |
| The order is contributions first, Publication 590 Page 65, but start at Page 63 | |
| 23 October 2007 | |
| One more point. If the Roth was created from a regular IRA rollover (or a 401K rollover ?) I believe the rules are different. Don't have the time to look it up right now. | |
Death&Taxes (talk|edits) said: | 23 October 2007 |
| That is why I suggested he begin with Page 63, for 63-65 cover that issue, including a nifty flow chart. | |
