Roth Distribution
I have a client who took a roth IRA distribution last year and just received her 1099. She is 40 years old has been contributing to her roth for 7 years. She contributed $12,000 to her Roth and it was only worth $10,400 when she made a total liquidation. (She did all of this without my knowledge) The 1099 shows that the fund company withheld 10% for taxes. My question is , did she request that a 10% be withheld for taxes, not knowing that no tax would be owed? She says that she never requested this. Or, did the fund company automatically assume the 10% withholding? I am correct in that she doesn’t owe tax on this distribution? So, now the question is, how does she get the 10% that was withheld back? Does she show that with the 8606 form?
Thanks for any response.
Permalink Submitted by mk foss on Tue, 2011-02-08 18:49
These kinds of distributions are subject to a 10% withholding, but the payee can always elect “no withholding” – which is what almost everyone does. It sounds like there was a mix up in the paperwork for the distribution.
The withholding is added to any other federal withholding that she has and shown on page 2 of Form 1040. All Roth distributions come from contributions first so there should be no tax. She will have to report the gross distribution and show that it is nontaxable on her Form 1040.