In 2017 I cashed out a bank Roth IRA CD. I was not expecting any issue for taxes or penalty because it was a Roth IRA, I have had Roth IRA’s for more than 5 years, and I am over 59 ½ years of age. I did get a 1099R with distribution code Q (Qualified Roth IRA Distribution) and entered this information into Turbo Tax. However, Turbo Tax is now asking for a lot of other information such as total prior year Roth IRA contributions and, if applicable, all years when Roth IRA conversions where made. This has become much more involved and complicated than expected. Is all this necessary to fill out or what minimum information is needed? I thought the fact it was a Roth and being over 59 ½ would be all the information needed.
Yes, this requested information is needed. There are Roth IRA distribution rules that must be followed to properly complete the Form 8606. Complete the requested interview questions to avoid Form 8606 errors.
Money withdrawn from a Roth IRA comes from contributions and conversions in a distinct order:
- Distributions first come from contributions and then from separate yearly conversions in "first-in, first-out" order.
- Conversions within a year are further divided into that part that was taxable at conversion and that part that was not taxable at conversion.
- A conversion that was not taxable occurs if the traditional IRA had a basis