Roth info: I contributed $6,000 in 2022 and $1,150 in 2023. The account was open for less than 5 years at that point and we were 24 years old.
My wife and I filed our taxes in 2023 with a tax professional because I withdrew $5,000 from my Roth IRA account for our home purchase (first time homebuyer). We ended up paying taxes on the full amount, but we now believe the taxes were filed incorrectly and the distribution should’ve been tax free.
The tax professional saw the early withdrawal code "J" on our brokerage form and told us we owed taxes on the distribution. However, from everything we've read since then, withdrawals taken solely from Roth IRA contributions (not earnings) should be both tax-free and penalty-free at any time. We believe a form 8606 should have been filed, since that form tracks your contribution basis and signals to the IRS that the withdrawal isn't taxable. We are arguing with the accountant that an amended tax return needs to be submitted, but they are saying that it was filed correctly since we didn’t qualify for the first time homebuyer exemption.
We would like to know if the distribution should’ve been tax free.
Help Needed on Roth IRA Distribution Disagreement with Tax Preparer
byu/Roth-IRA-Tax-Help intax
Posted by Roth-IRA-Tax-Help
2 Comments
You are correct. You had $7,150 in contribution basis that could be withdrawn penalty- and income tax-free. Form 8606 was your friend.
Find a new tax preparer and amend.
Get a new accountant.
Form 8606 Part III.
Yes, you can always take out your contributions tax free and penalty free, regardless of years or age. You can also take tax free and penalty free distributions for first time home purchase up to $10,000. See the instructions for the 8606 or Publication 590-B. Even if you don’t qualify for this, you can still take out your original contributions.
Since you only took $5,000 which is less than your contributions, you don’t need to use up your first time home excuse. Just take it against your contributions and be done.
Your return needs to be amended to remove the tax and include the Form 8606 Part III.