How to report this ROTH distribution transaction?

[artp]

Client got 1099-R box 7 Code J For $33,000 indicating penalty applies. He has had Roth since 2008 and is age 48. Amount contributed + earnings is $31,000 so only $2000 should be taxable and subject to 10% penalty. Correct? Should I put $31,000 in box 5 and let it go at that or include an attachment to explain this?

Edited March 24, 2019 by jklcpa
more descriptive title

[Margaret CPA in OH]

If an exception doesn't apply (over 59 1/2, disabled, first time homebuyer, etc.) penalty applies even if 5 years has passed since first deposit otherwise not a qualified distribution. See Form 5329.  I think.

[Catherine]

Nope, I must disagree with Margaret.  With a Roth IRA, once the account has been in existence for five years you can take your basis in the money out free of tax or penalty.  So yes, subtract the basis from the distribution, and the balance is taxable.  There should be a field on the 5329 about what amount is subject to penalty.

[Hahn1040]

form 8606 part III will show the distribution.  enter the basis on line 22

the taxable $2,000 will go on 5329 subject to 10% penalty

[jklcpa]

Because the taxpayer is only 48 years old (under 59 1/2), the earnings withdrawn will be considered as income and subject to income taxes and a 10% penalty tax. The 10% penalty may be waived if you meet one of the exceptions.

[Margaret CPA in OH]

Yes, Judy and Catherine, I was less than explicit.  I meant the earnings was subject to the penalty unless an exception applied.  I just did one of these last month. I did say to use 5329 for clarity even when I am not.

[Terry D EA]

Just to add a different wrinkle, if this is a total distribution then all of the responses regarding the earnings as taxable and subject to the penalty due to the TP age are correct. I am assuming this was a total distribution. If not then the ordering rules apply. Just did one involving the ordering rules and what a PITA to get the broker, who was the third broker to handle this, to come up with what was contributions and what was earnings because my guy was under 59 1/2 and held this thing for 20 years.

[Pacun]

Thank you for all the explanations. I have seen this post and I didn't bother to read before. Today I felt bored and I decided to read and to my surprised, I have a client exactly in the same situation. I am glad I read this because I was second guessing myself and I have an appointment with the client tomorrow. 

I am surprised that my client's 1099-R doesn't show the contribution amount since they have had this account since its inception. 

If the title on this posting would read something like "How do I report this Roth IRA transaction", I would have read it a while ago.

[Pacun]

Whoever changed the title on this post... THANK YOU. Very helpful!!!!