Form 8606 is used to report the following transactions related to an IRA:
- Nondeductible contributions made to a traditional IRA;
- Distributions from a traditional, SEP, or SIMPLE IRA, if the taxpayer has basis in these IRAs;
- Conversions from a traditional, SEP, or SIMPLE IRA to a Roth IRA;
- Distributions from a Roth IRA.
When is a Roth IRA Distribution taxable?
A Roth IRA must be in place for a full 5 years prior to any withdrawal. Distributions from a Roth IRA that include earnings may be taxable if the taxpayer is under the age of 59-1/2 or has not met the 5-year rule.
If either the age or 5-year rule is not met, earnings withdrawn will be included in income and taxed. Taxpayers under the age of 59-1/2 will also be subject to a 10% penalty on earnings withdrawn unless they meet qualified exceptions.
Taxpayers who have met the age 59-1/2 requirement will be subject to income tax on earnings of early withdrawals (due to not meeting the 5-year rule), but will not be subject to the 10% early withdrawal penalty.
Form 8606 is used to determine the amount of the taxable distributions, however these kinds of distributions are excluded:
- a rollover (other than a repayment of a qualified disaster distribution on Form 8915-F;
- a qualified charitable distribution;
- a one-time distribution to fund an HSA;
- a recharacterization;
- a return of certain contributions (see the form instructions for more info);
To enter information about Roth IRA distributions, from the Main Menu of the tax return (Form 1040) select:
- Adjustments
- Nondeductible IRAs (8606) - For a MFJ return, select Taxpayer or Spouse
- Distributions from Roth IRAs - See the Form 8606 instructions for each of these menu lines to determine what to enter and what to exclude.
- Total Roth IRA distributions in 20xx (form line 19)
- Qualified First-Time Home Buyer Distribution (form line 20)
- Basis in Roth IRA Contributions (form line 22)
- Basis in Roth Conversions (form line 24)
Note that the taxable amount, as calculated on Form 8606, doesn't flow to Form 1040. Rather, the calculated taxable amount needs to be entered in Box 2a of the related Form 1099-R.
Note: This is a brief guide on entering Roth distributions into the TaxSlayer Pro program. This is not intended as tax advice.
Additional Information:
IRS: Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)