Roth IRA distribution and Form 8606 requirement to Tax Return
I understand that a Form 8606 must be filed with my Tax return in any year I take a Roth IRA distribution. Doesn’t the Roth IRA custodian send me and the IRS a Form 1099R, distribution code Q, identifying the distribution as a non-tax distribution? Would my Roth IRA beneficiaries also be required to file this form with their tax return even if they would not otherwise be required to submit one for the year? Thank you for your help in understanding this. It’s much appreciated. Frank M.
Permalink Submitted by Alan - IRA critic on Tue, 2016-12-06 02:01
Frank, once your Roth is qualified (5 years and age 59.5), you no longer have to report distributions on Form 8606. They only go on line 15a with nothing on 15b. Many custodians will not provide code Q, particularly if THEY have not held the Roth for 5 years, but if you are sure the distribution is qualified nonetheless you do not have to report it on an 8606. If you have met the 5 year holding period upon your passing, the Roth is qualified for both you and your beneficiaries, and they do not have to file an 8606 either. The 5 year holding period continues to run after your death, so if you only had a Roth 3 years before passing, once the inherited Roth was held 2 more years, the 5 year requirement is met. Beneficiaries would have to file an 8606 until the inherited Roth was qualified and would not have to once it became qualified.
Permalink Submitted by Frank Miyamura on Tue, 2016-12-06 04:26
Alan, Thank you so much for this clarification. It puts my mind to rest. Frank
Permalink Submitted by David Hogan on Mon, 2017-02-13 23:27
My 23 year old granddaughter had made contributions to a Roth for 10 years. She now wants to go for another degree and cashed in the Roth to the extent of contributions only , none of the earnings which she has left in the account. I am confused on how to help her report this and the tax and or penalty impact. Are there other forms other than the 1040 to file? Seems she will be paying tax on her already earned money.Can you hel us out.
Permalink Submitted by Alan - IRA critic on Tue, 2017-02-14 01:05
There should be no tax or penalty as long as she left all the earnings in the Roth. She needs to file Form 8606, and on line 22 enter the total amount of regular contributions in the Roth that had not been removed earlier. That should leave 0 to be taxable. Her gross distribution will go on line 15a of Form 1040, nothing on 15b. It is good that she kept tabs on the total amount of contributions she has made so she knew how much she could withdraw without taxes.