The Motley Fool Discussion Boards

Previous Page

Financial Planning / Tax Strategies


Subject:  Re: Roth IRA early distribution penalty Date:  2/4/2013  4:57 PM
Author:  joelcorley Number:  117628 of 127745


You wrote, The return was DONE except for that one item. Very simple return. Just a W2 and this 1099-R. The refund grew a lot just by clicking the Box 7 "early distribution" option. With that choose there is NO penalty or tax on the Roth IRA early distribution. I can't figure out why. I Googled and don't see any exception for his simple case. And even if there were, there was no exception information included in the return in Turbo Tax.

I'm not a tax expert, but what was in Box 2A? From what I can tell, this is the important part of a 1099-R. What's more, the IRA administrator can put an X in Box 2B to indicate that the taxable portion is unknown. This gives the administrator the option to not maintain a taxable cost basis and leave it up to your friend to figure out.

Finally, the 10% penalty only applies to taxable earnings on his contributions that were withdrawn. If he didn't earn much, the penalty might not be much either - even though he may have withdrawn everything. Also, your friend and/or the administrator are probably counting the earnings as the last thing withdrawn, which means he may have just withdrawn principal from his original contributions.

- Joel
Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us