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Discussion:Roth IRA Distr. coded J

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Discussion Forum Index --> Tax Questions --> Roth IRA Distr. coded J


Schenckdmm (talk|edits) said:

20 February 2014
Client (52 yrs old) withdrew Roth IRA during 2013 and was told by Investment firm it would not be taxable. They coded box 7 with J but did not put anything in box 5 of the 1099.

They've had the Roth IRA over seven years.

Proseries wants to tax it all and penalize 10% with the J code.

1. Shouldn't the Investment firm have inserted the amount/basis in box 5? That's the only way I know it will reduce the taxable amount.

2. If it wasn't used for any of the exemption options, the penalty will still apply, correct?

3. Am I correct in telling client if Inv. Co is going to code J then they should include box 5 amounts or it's all going to be taxable.

Thanks,

Captcook (talk|edits) said:

20 February 2014
Input basis in the Roth to your software.

Schenckdmm (talk|edits) said:

21 February 2014
Okay, so should the 10% penalty still apply?

Ckenefick (talk|edits) said:

21 February 2014
I think you're mistaken if you think Inv. Co. will actually be diligent in tracking client's basis. And, I would be mistaken if I believed the preparer would actually track it too. It's hard to track, for you and me, because it's something that doesn't show up on the 1040. Often, we just tell the client, "You can put in $5k," and leave it at that. They might put in $2,000 or $5,000 or $0. For this reason, for those clients with ROTH accounts, I impress upon them that no one is tracking their basis...so it is up to them.

Okay, so should the 10% penalty still apply?

So, to answer your question: Apply to what? Even with a disqualifying distribution, you can pull your basis out first with a regular ROTH account. (All the more reason for client to track basis).

Joanmcq (talk|edits) said:

21 February 2014
Earnings will be subject to penalty. The client's 5498s for the contribution years will show basis. Ask for them.. Your client could also download the forms from eservices.

Schenckdmm (talk|edits) said:

21 February 2014
Thanks!

Death&Taxes (talk|edits) said:

21 February 2014
ProSeries will track the contributions but you must ask your client about them, or see the 5498, which only shows each year's contribution.

I have the same problem with state taxes in New Jersey with traditional IRA withdrawal (and 403(b) withdrawal). Since they were not deductible on state taxes in the first place, I need the cost to recover the basis either using a three-year rule or a simplified rule. With Pennsylvania, you run into the same problem with early withdrawals from any contributory pension (401K, IRA, SEP, etc.)... They are tax free after retirement, but not so prior to that.

CathysTaxes (talk|edits) said:

21 February 2014
Wow, client just gave me one of these yesterday.

Schenckdmm (talk|edits) said:

7 March 2014
CathysTaxes,

Did you get it to work with the J code?

Anyone, everything I tried on the 1099 sheet in Proseries will not prevent any of the Roth IRA distribution from being taxed and penalized with the "J" code selected. The only thing that does is if I check a box lower on the page saying if box 7 is J and it's a Qualified Dist., check here.

The client knows their basis from 1999. I don't know why the Invest. firm didn't include it but when I add it in box 5, nothing changes.

Should the Invest. firm recode since most of the distribution was a return of contributions?

Ckenefick (talk|edits) said:

7 March 2014
I'd think there'd be some other place to input basis.

Kevinh5 (talk|edits) said:

7 March 2014
Tax software is no substitute for a good tax professional.

Death&Taxes (talk|edits) said:

7 March 2014
At the bottom of page one of the 99R worksheet, 'Quickzoom' to the Roth basis worksheet... When you get there, check the box to start the IRA was opened before 2009, then enter your cumulative contributions to the Roth on Line 23 or 24, (if it came from a conversion).

With most software, it is a case of knowing what you want to do, and searching for the answers in the software. Familiarize yourself with the conditions listed below the replica of the 1099R.....the other day, I wondered why when I saw my clients, balance due was 7900, but when I reviewed it later, balance had dropped to 6500. Turns out I had not checked the box for a distribution being from an inherited IRA, and I had entered the man's basis in non-deductible IRAs.....so the distribution had been taken from that balance and not taxed.

CathysTaxes (talk|edits) said:

10 March 2014
Schenckdmm, sorry for the delayed response. Client got broker to provide his basis in the Roth IRA.

Schenckdmm (talk|edits) said:

10 March 2014
Thank you!

Death&Taxes (talk|edits) said:

10 March 2014
I hope the thanks is for the time I spent giving you the answer.

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