Question

Is this ROTH IRA distribution taxable?

Forum|Forum|5 years ago
February 15, 2021
2 replies
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I opened a ROTH IRA account (say account A) with a bank in the beginning of the 2020. After a few days I found that the bank’s auto-managed/robo investing method is quite impressive, so converted the self-managed account to auto/robo managed (say the new account is B). In the fall, I realized that the auto/robo management of the account is not taking my investment anywhere, so converted the account back to self-managed or back to the same account A, where I started with. In January this year, I received a 1099-R saying gross distribution of $1. Upon checking with the bank, I found that a month after closing account A, the bank credited $1 in interest to a checking account on file.

Is that $1 gross distribution taxable? The 1099-R has checked the box of taxable amount not determined. Or can I skip the tax as making it rollover (I actively contributed to ROTH IRA account afterwards)? I know $1 is not a big amount, but just want to make the taxes right.

TurboTax Premier Online

DaveF1006

Yes, if you are really a stickler for details, I would report the 1099-R exactly the way it is listed and report the $1 as a rollover so that you comply with IRS reporting requirements.

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D

dmertz

Employee

I'll assume that you are under age 59½ or it has been less that 5 years since the beginning of the year for which you first made a Roth IRA contribution (or both).

There's no reason not to report this on your tax return. The distribution is not taxable because it's a distribution of $1 of your contribution basis. Even though including this distribution on your tax return will produce no difference in your AGI or tax liability, entering this Form 1099-R will allow TurboTax to keep your Roth IRA contribution basis straight since this distribution has reduced your Roth IRA contribution basis by $1.

To make the entries, be sure to enter you Roth IRA contribution under Deductions & Credits, tell TurboTax to track your Roth IRA contribution basis, if asked, then enter the Form 1099-R and indicate that you cashed out this $1. TurboTax will prepare Form 8606 to calculate a $0 taxable amount of this distribution and TurboTax will properly reduce your Roth IRA contribution basis by $1 on the IRA Information Worksheet that carries information forward to future years.