Desktop: Form 8606 - Roth IRA Distributions
Form 8606 is used to report various IRA transactions which include:
- Nondeductible contributions to traditional IRAs
- Distributions from SEP, traditional, or Simple IRAs in case the taxpayer has some claim in these IRAs
- Conversion from SEP, traditional or SIMPLE IRAs to Roth IRAs
- Distributions from Roth IRAs
When is a Roth IRA Distribution subject to tax?
A Roth IRA must exist for five complete years before any withdrawal can be made. That is according to the legislation in operation at the moment. In the event that either the taxpayer has not attained the age of 59-1/2 or the Distribution from a Roth IRA is yet to meet the five-year rule, then, earnings from it may be taxable.
Earnings withdrawn in a manner that breaches the IRS withdrawal guidelines will be considered income and be taxed. Unless taxpayer's below the retirement age of 59-1/2 meet qualified exceptions, they may receive a 10% penalty on earnings withdrawn.
Early withdrawals by taxpayers who have attained the age of 59-1/2 will be subject to tax if they do not meet the 5-year rule. On the contrary, they will not get the 10% penalty for early withdrawal.
Form 8606 can be used to determine Taxable Distributions (withdrawals). To enter Roth IRA distributions information:
- Go to Adjustments through the Main Menu of a tax return
- Proceed to Nondeductible IRAs - If it is an MFJ return, choose whether for Taxpayer or Spouse
- Select Distributions from Roth IRAs
- Then select Enter total amount of Roth IRA Distributions
- Lastly, select Enter Basis in all Roth IRAs
Note: This is not tax advice. Rather, it is a general discussion of the Regulations of the IRS in regards to the taxing of Roth Distribution.
Additional Information:
IRS: Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)