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Posts Tagged ‘ira’

Question: Roth IRA distribution before age 59 1/2 is taxable income?

I’m doing my parents taxes. My mom for some reason decide to withdraw all of the money out of her Roth IRA. Well, now on her 1099-R sent by the bank, the distribution code is a J, early distribution from Roth IRA without known exception. I know she will get penalize that 10%, however, according to the IRS Form 1040 line 15 instruction. It said that the distribution is taxable unless the code is either T or Q. So it practically saying she will get tax on her distribution & get penalize 10% on top of that. My question is, am I reading this right? Roth IRA is your after tax money that you put in, why does the distribution become taxable now? Anything she can do to minimize this situation?

Answer: If there are no conversions less than 5 years old, the only part of a Roth IRA Distribution that is taxable and subject to the 10% penalty are the earnings.
If any part is a conversion less than 5 years old the portion that was taxable in the year of the conversion will not be taxable in the year of the distribution, but will however be subject to the 10% penalty for early distribution.
Report the full amount of the distribution on line 15A of the form 1040, the earnings are reported on line 15B.
Any penalty is accounted for on line 60 of the form 1040 and you need to complete part 3 of the Form 8606 and submit that with the 1040

Publication 590

http://www.irs.gov/publications/p590/index.html

Instructions to form 8606

http://www.irs.gov/instructions/i8606/index.html

http://www.irs.gov/pub/irs-pdf/f8606.pdf

UPDATE
TO Steven F’s comment below

See Ordering Rules for Distributions page 61 of Publication 590

http://www.irs.gov/publications/p590/ch02.html#d0e10235

Question: Where do I report my 1099-R?

The distribution amount is on box 1 and box 2a, and the code on box7 is u.
so should I put the distribution amount on line 16 of 1040 or Schedule B?

Answer: Line 16 of the 1040.

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Question: where should I report my 1099-r?

I recieved a 1099-r and my distributions are in box 1 and NOT in box 2a. In box 2b total distribution is checked. The distribution code in box 7 is G.
where should i report this on my 1040?

Answer: Provided the funds represented on the 1099-R are a legitimate rollover of an IRA or a 401k, then you will enter the amount on line 11A on form 1040A or line 15A if using form 1040. As long as the entire amount was rolled over to another custodial account per the guidelines, then the only other thing you need to put on your form 1040 would be to write the word “ROLLOVER” in the space reading “taxable amount”. No other entry is required.

Question: efile twice, make mistake 1st time, resubmit. What will happen?

I did the efile twice, and submit from 2 different companies. The first one I forgot to put the 1099-R after I submitted. So I search another site to make the changes and submit the second time. (The first site I used didn’t support the 1099-R with G code) It didn’t make the difference on the tax amount, because that’s 401 k rollover.

What form the IRS will take? Am I in trouble?

Answer: Not in trouble exactly. But the second efile will be rejected, since you had already filed, if the first one went through successfully, so you are going to have to file an amended return for the first one on form 1040X adding in the 1099-R.

If the IRS rejected the first efile for any reason, then you are OK.

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The oil spill has already cost BP almost $150 million in compensation, but replacing millions in undocumented income from the tourist-driven Gulf economy may prove impossible.

Question: Help with fafsa questions?

I am doing the parents income estimator. I have no problem getting the income information from my father but would like to know what these questions mean.

it ask for the amount of Wages, salaries, tips, etc.

also,

IRS-allowable adjustments to income (payment to IRA and Keogh Plans, one half of self employment tax, self-employed health insurance deduction, interest penalty on early withdrawal of savings, alimony paid, and student loan interest deduction).

I am confused, can anyone help me out?
thanks

Answer: Those adjustments are found on lines 23 to 35 of your parents tax return (IRS Form1040). The following link will give you a blank copy of that form. It is rare that anyone can complete the FAFSA forms without having a copy of the last years income tax return for their parents and or their own.

http://www.irs.gov/pub/irs-pdf/f1040.pdf?portlet=3

12 Traps To Avoid When Converting To a Roth

12 Traps To Avoid When Converting To a Roth