Items you will need
- IRS Publication 590 (2: Roth IRA)
- IRS Form 8606
- IRS Form 5329
- 1099R forms
- Account records
The great thing about a Roth IRA is that normally you don’t pay any taxes on earnings when they are withdrawn after retirement, for qualified educational expenses or for buying a first home. You can leave Roth money in the account as long as you like. There’s no required minimum distribution. However, you still report a Roth IRA distribution on a tax return to document withdrawals. In addition, some early distributions are subject to income taxes. Be sure you follow the rules. Improper withdrawals are subject to a 10 percent penalty tax plus regular taxes.
Determine the status of your Roth IRA. If you were at least 59 1/2 years of age at the time of the distribution and the Roth IRA was in its fifth year of existence, your distributions are considered regular distributions. Otherwise, withdrawals are considered early distributions.
Total the distribution amounts in box 1 of the 1099-R form(s) sent you by the financial institutions where you have Roth IRAs. Next, total the distributions subject to taxes (in Box 2 of the 1099R). Enter the total of box 1 on line 15a of your 1040 and the amount from line 2 on line 15b.
Complete Internal Revenue Service Form 8606 (Nondeductible IRAs) for all early distributions from an IRA. Form 8606 is used to determine if your withdrawals are considered contributed funds, which are not subject to taxes. Any early distribution is considered contributed funds unless you withdraw more than the total amount of your lifetime contributions to the Roth IRA. Attach the completed Form 8606 to your tax return.
Complete IRS Form 5329 (Additional Taxes on Qualified Plans) if you have withdrawn any funds early other than contributions. Form 5329 is used to determine taxes and penalties (if any) due on early distributions from IRAs. Generally, money spent toward the purchase of a first home (up to $10,000) or for eligible education expenses is not taxable and there is no penalty. Other allowed early distributions (for example, if you are disabled, have large medical expenses or use the money to pay health insurance while unemployed) may be subject to regular taxes but not to the penalty tax. Attach Form 5329 to your income tax return.
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