Roth IRA
I am a volunteer with AARP at Luke Air Force base in Arizona. I had a airman that withdrew over $7000 from a Roth IRA that was funded with after-tax money. His basis is over $10,000. The company sent him a 1099-R that showed distribution code J and did not have any taxable amount in line 2. The program we use showed a 10% penalty for the full distribution as an early distribution. There were no earnings from this investment and the taxpayer lost money. Is code J the problem? My understanding is that there is no tax or penalty in this situation. Thanks
Permalink Submitted by Alan - IRA critic on Thu, 2018-04-05 02:24
You are correct, and the 1099R is also correct with respect to box 2a and code J. The amount of regular contribution basis needs to be entered into the tax program, and that will eliminate both tax and penalty. HIs regular contributions basis will then be reduced to 3,000 going forward. Be sure that Box 7 IRA box is NOT checked, and if the airman has more than one Roth IRA, the total basis for all of them needs to be entered into the program. The main factor here is to trigger the entry of total regular Roth contribution basis.