Roth Tax & Penalty
Alan withdrew $10K from his Roth IRA with the intent to put it back into the account within 60 days. That didn’t happen, and the IRS is saying he owes something like $4K in tax and penalties. This mistake occurred in 2016. Alan is 43. My only guess is that the IRS is treating this withdrawal as if it was all taxable and that Alan will have to document his contributions. Could you shed some light on this situation, specifically as to how the IRS typically handles situations like this?
Permalink Submitted by Alan - IRA critic on Thu, 2017-06-22 18:05
Any chance of this being appealed per https://www.irs.gov/pub/irs-drop/rp-16-47.pdf? If no chance for rollover relief he just needs to file a correct 8606 showing his basis for regular Roth contributions on line 22 as for any non qualified Roth distribution. That should erase any tax and penalty. Without the 8606 the IRS will assume there is no basis and that the distribution came from earnings.