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Help with Roth IRA Tax Issue

Posted: Fri Feb 01, 2013 5:00 pm
by fcox85
I closed Roth IRA with Betterment in 2012, and used the distribution to pay off some debt. My total contributions in 2012 totaled about $1033.33, and my total distribution was $1054.00. My understanding of this early withdrawal was that the taxes would be minimal, since my total gains withrawn only amounted to about $21. However, when I imported my tax information to TurboTax from Betterment, the reduction in my refund was affected by several hundred dollars. The 1099 supplied by Betterment seems to lack any information as to my contributions to the Roth, only listing "gross distrubtions." Something is off here, right?

Re: Help with Roth IRA Tax Issue

Posted: Fri Feb 01, 2013 5:05 pm
by crowd79
Were you very close to an income threshold for certain Credits that you may have qualified for and claimed? That $21 -now reported as income plus a 10% penalty on the earnings withdraw ($2) could be the difference.

Re: Help with Roth IRA Tax Issue

Posted: Fri Feb 01, 2013 5:24 pm
by Alan S.
More likely, you did not complete the input showing your total contributions as 1,033. and were therefore taxed and penalized on the entire distribution of 1054 instead of just the earnings of $21. The 1099R will not provide any of this information, that has to come from your own record keeping and entry of your contribution amount. And remember that if you have any other Roth IRAs, for tax purposes they are combined as one, and that could change everything.

Re: Help with Roth IRA Tax Issue

Posted: Fri Feb 01, 2013 5:31 pm
by fcox85
The 1099 initially listed the taxable amount as "n/a,"which apparently requires me to file Form 8606. Took some searching, but I finally found and filled out Form 8606. All is well.

Re: Help with Roth IRA Tax Issue

Posted: Fri Feb 01, 2013 5:32 pm
by crowd79
Alan S. wrote:More likely, you did not complete the input showing your total contributions as 1,033. and were therefore taxed and penalized on the entire distribution of 1054 instead of just the earnings of $21. The 1099R will not provide any of this information, that has to come from your own record keeping and entry of your contribution amount. And remember that if you have any other Roth IRAs, for tax purposes they are combined as one, and that could change everything.


You're probably right, Alan. The OP probably entered the entire amount ($1054) rather than doing the math and entering $21. That $1k difference would definitely alter the tax bill by hundreds of dollars depending on tax bracket. Still, the OP should also check any credits they may have been claimed & got reduced if he/she claimed any. That could also be a factor.