Roth IRA distribution tax and penalty

Question

IRS Pub 590-B P33 example has an example, which I summarize as below:

A taxpayer, age 32, made the following contribution and conversions:

2000 - 2019: contribution 50,000
2005: conversion 10,000
2016: conversion 20,000
2000: contribution 5,500
earnings: 2,5000
2020: early distribution 85,500 with qualified first time home purchase 10,000

I completed the form 8606 and 5329 using ProConnect Tax and the form 8606 results are:

Line 19: 85.500 (non-qualified distribution including first time home distribution)
Line 20: 10,000 (as in the example)
Line 21: 75,500 (math)
Line 22: 55,500 (as in the example)
Line 23: 20,000 (math, subject to penalty)

I doubt it is correct because supposedly the 2005 conversion 10,000 is outside of the 5 year window and the distribution of it should not be subject to penalty, but I could not see where I should indicate this in the input field of the software, nor I see where it should appear in these lines.

The form 5329 results are:

Line 1: 10,000
Line 2: 10,000 (code 09)

This is not correct either, the line 1 is supposed to be 20,000. Could you please try it? There are just a few numbers and easy to do, thanks a lot!

TaxGuyBill · Accepted Answer

@TaxGuyBill Thank you so much for doing this. The form 8606 line 23 amount 20,000 subject to penalty has the first time home purchase exception factored in (10,000 in line 20), does it?

Suppose the distribution is not for home purchase, can you remove the first time home purchase and find what would be the amount subject to penalty as shown on line 23 of the form 8606? Is that 30,000? If so, then how can the first time home purchase reduce the amount from 30,000 to 10,000 as shown in your form 5329?

@puravidapto wrote:

The form 8606 line 23 amount 20,000 subject to penalty has the first time home purchase exception factored in (10,000 in line 20), does it?

amount subject to penalty as shown on line 23 of the form 8606? Is that 30,000? If so, then how can the first time home purchase reduce the amount from 30,000 to 10,000 as shown in your form 5329?

Line 23 is NOT the amount subject to a penalty and that does NOT automatically go to Line 1 of the 5329. Line 1 of the 5329 is going coming from the post 2006 conversion of $20,000.

George4Tacks · Answer

From Pub 590-B I believe your basis is the full 85,500 - contributions and rollovers.

What Are Qualified Distributions?

A qualified distribution is any payment or distribution from your Roth IRA that meets the following requirements.

It is made after the 5-year period beginning with the first tax year for which a contribution was made to a Roth IRA set up for your benefit.
The payment or distribution is:
1. Made on or after the date you reach age 59½,
2. Made because you are disabled (defined earlier),
3. Made to a beneficiary or to your estate after your death, or
4. One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).

What Are Qualified Distributions?

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