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If either the age or 5-year rule is not met, earnings withdrawn will be included in income and taxed. Taxpayers under the age of 59-1/2 will also be subject to a 10% penalty on earnings withdrawn unless they meet qualified exceptions.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 in TaxSlayer ProWeb, from the Federal Section of the tax return (Form 1040) select:
- Deductions
- Adjustments
- Nondeductible IRAs - For a MFJ return, select who the form is for, either 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 Homebuyer Distribution (form line 20)
- Basis in Roth IRA Contributions (form line 22)
- Basis in Roth Conversions (form line 24)
Note: This is a brief guide on entering Roth distributions in Form 8606 in TaxSlayer ProWeb. This is not intended as tax advice.
Additional Information:
IRS: Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)