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March 20, 2024
Question

If I lost my job and had to take money from my roth ira, are there any special circumstances that I can use to lower my tax liability?

  • March 20, 2024
  • 1 reply
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on the 1099R the federal deduction was about 1/2 what it should have been

1 reply

Employee
March 20, 2024

What tax liability?

 

When you withdraw from a Roth IRA, you always withdraw in this order:

1. Contributions first.  Withdrawal of contributions is not taxable.

2. Conversions second.  Withdrawal of amounts that were previously converted from a traditional IRA are not subject to regular income tax, but are subject to a 10% penalty if the conversion was less than 5 years ago and you are under age 59-1/2.

3. Earnings last.  Withdrawal of earnings is subject to income tax if you are under age 59-1/2, or if the Roth account is less than 5 years old, even if you are over age 59-1/2.  There is also a 10% penalty if you are under age 59-1/2 no matter how long the account was open.

 

If you owe income tax, there are no exceptions or adjustments.  If you are being charged the extra 10% penalty for early withdrawal, the only exception that applies in your situation is if you used the money for certain medical expenses and COBRA health insurance premiums while unemployed.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-exceptions-to-tax-on-early-distributions

 

However, unless you withdrew the entire account, it seems unlikely that you should owe a lot of tax.  Did you withdraw more than your original contributions?  (You kept track, right?)  When entering the 1099-R for a Roth IRA, the program should ask you for the amount of your original contributions, and any previous withdrawals.