Dave T Posted February 23, 2022 Report Share Posted February 23, 2022 T/p's both over 59 1/2. Over the past three years they convert traditional IRAs to Roth IRAs, $12,000 each year. ( 2019-2021) In 2021 they take a distribution from the Roth for new home. The 1099R shows the $10,500 as zero taxable, but with code T, exception applies. I assume the exception is that due to not being held for 5 years and thus now shows as taxable on the 1040. I then start inputting the 8606 showing the $10,500 on line 19 as a distribution and $36,000 as basis in the Roth and all of a sudden the distribution is no longer taxable. Any thoughts as to what I might be missing on this? Thank you in advance. Quote Link to comment Share on other sites More sharing options...
TexTaxToo Posted February 23, 2022 Report Share Posted February 23, 2022 The "basis" is not taxable, and unlike regular non-deductible IRAs, with Roth IRAs the basis is treated as being withdrawn first. So they can withdraw $36,000 with no tax due. And since they are over 59 1/2, there is no penalty. Quote Link to comment Share on other sites More sharing options...
Slippery Pencil Posted February 23, 2022 Report Share Posted February 23, 2022 There's an exception for 1st time home buyer up to 10K. Withdraws up to basis are tax free. If they had another ROTH opened more than 5 years ago, they meet the 5 year rule. Quote Link to comment Share on other sites More sharing options...
TexTaxToo Posted February 23, 2022 Report Share Posted February 23, 2022 There's a separate 5-year period for each conversion. There's one 5-year period for direct contributions. The clock starts with the first. The home buyer exception is only for the penalty (10% additional tax) which doesn't apply anyway if over 59 1/2. Quote Link to comment Share on other sites More sharing options...
Slippery Pencil Posted February 23, 2022 Report Share Posted February 23, 2022 Yes, the conversion rule. Forgot about that. Quote Link to comment Share on other sites More sharing options...
TexTaxToo Posted February 23, 2022 Report Share Posted February 23, 2022 29 minutes ago, Slippery Pencil said: There's an exception for 1st time home buyer up to 10K. You're right. The first 10K applies to regular tax as well as the penalty. Quote Link to comment Share on other sites More sharing options...
Dave T Posted February 23, 2022 Author Report Share Posted February 23, 2022 There were no other Roths and the first conversion was in 2019 so they don't meet the 5 year rule. Seems that the 2021 distribution s/b taxable. The $10K distribution wasn't for a first time homebuyer, just a downsize. Quote Link to comment Share on other sites More sharing options...
Slippery Pencil Posted February 24, 2022 Report Share Posted February 24, 2022 2 hours ago, Dave T said: Seems that the 2021 distribution s/b taxable. No it doesn't. Quote Link to comment Share on other sites More sharing options...
Dave T Posted February 24, 2022 Author Report Share Posted February 24, 2022 What am I missing then? There are no other Roths and they don't meet the 5 year rule. Thank you. Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted February 24, 2022 Report Share Posted February 24, 2022 1 hour ago, Dave T said: What am I missing then? There are no other Roths and they don't meet the 5 year rule. Thank you. They have BASIS in their Roth that has previously been taxed and they have not withdrawn enough to use up their basis. 2 Quote Link to comment Share on other sites More sharing options...
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