1099-R form issue: Withdrawing Roth IRA contributions but getting taxed? Help!

This is a common issue with Roth IRA distributions. The problem is likely with the distribution code on your 1099-R. For tax-free withdrawal of Roth IRA contributions, the form should have Code J or T in Box 7, which indicates early distribution from a Roth IRA with no known exception or qualified distribution. When you withdraw only contributions (not earnings) from a Roth IRA, those withdrawals should indeed be tax-free and penalty-free, regardless of your age or how long the account has been open. This is because you've already paid taxes on that money before contributing. What's happening is that your tax software is probably treating the distribution as taxable because the 1099-R from Fidelity likely has an incorrect distribution code. You'll need to contact Fidelity and ask them to issue a corrected 1099-R with the proper code. In the meantime, you can still file your taxes correctly even with an incorrect 1099-R. You'll need to report the full distribution amount on your tax return but then correctly identify the taxable portion as $0 on Form 8606 (Nondeductible IRAs). This form will help you document that you're withdrawing only contributions.

Hey there! I had almost the exact same issue last year with my Roth IRA withdrawals. After hours of frustration and research, I discovered taxr.ai (https://taxr.ai) which literally saved me from paying thousands in unnecessary taxes. I uploaded my 1099-R and it immediately flagged that my distribution code was incorrect - my custodian had used code 1 (early distribution, no known exception) instead of code J (distribution from a Roth IRA). The tool walked me through exactly how to handle this situation, including which forms I needed to complete to properly report my distribution as non-taxable. The crazy thing is my tax preparer had no idea how to handle this. The tool showed me how to fill out Form 8606 correctly to document that my withdrawal was return of contributions, and even generated a letter I could send to my custodian requesting a corrected 1099-R.

Update on my Roth IRA tax situation - I decided to try taxr.ai after seeing it mentioned here and wow, it was eye-opening! The system immediately identified that my 1099-R had distribution code 1 instead of code J, just like the previous poster mentioned. I followed the guided process to complete Form 8606 Part III to properly document my non-taxable distribution. The system even generated a letter for me to send to my custodian requesting a corrected 1099-R with the right distribution code. The most helpful part was the explanation of the "ordering rules" for Roth distributions (contributions come out first, then conversions, then earnings) and showing me exactly how to report this correctly even with an incorrect 1099-R. My tax bill dropped by over $2,500 after properly documenting everything! Definitely worth checking out if you're dealing with retirement account distribution issues. Saved me from a major headache and potentially paying taxes twice on the same money.

If you're still struggling to get this resolved, you might want to try calling the IRS directly to ask about the proper handling of Roth IRA contribution withdrawals. However, good luck actually getting through to a human being! I spent 3+ hours on hold last week trying to resolve a similar issue. After nearly giving up, I discovered Claimyr (https://claimyr.com) which basically got me connected to an actual IRS agent in under 20 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that Roth IRA contribution withdrawals are indeed non-taxable, and explained exactly how to handle the situation with an incorrect 1099-R. They walked me through the Form 8606 process and even noted in my account that I had contacted them about this issue in case there were any questions during processing. Saved me so much stress!

I have to admit I was totally wrong about Claimyr. After posting my skeptical comment, I decided to try it anyway out of desperation. I've been trying to reach the IRS for MONTHS about my amended return. The system actually got me through to an IRS representative in about 35 minutes. I was honestly shocked. The agent was able to look up my amended return status, explain why it was delayed, and put notes in my file to help move it along. They also confirmed that my Roth IRA distribution handling was correct (I had the same issue as the original poster). For anyone dealing with IRS issues, especially during tax season when it's nearly impossible to get through, this is seriously worth it. I wasted so many hours trying to call them directly, getting disconnected, and starting over. Wish I had known about this service months ago!

One thing nobody's mentioned yet - check if your Roth IRA is less than 5 years old. There's a 5-year rule that applies even to contribution withdrawals in some cases. If you established your first Roth IRA less than 5 years ago, that could potentially be why the distribution is being coded as taxable. Also, did you ever do a Roth conversion from a Traditional IRA? Those converted amounts have different 5-year rules for each conversion. The ordering rules say contributions come out first (tax-free), then conversions (potentially taxable if within 5 years), then earnings.

I work at a financial firm (not Fidelity) and this happens ALL THE TIME. The problem is that the default code our systems use for distributions under age 59½ is code 1, and someone has to manually change it to code J for Roth contribution withdrawals. Many times the customer service rep processing the distribution doesn't properly code it. Pro tip: Next time you request a distribution, specifically tell them you're withdrawing only contributions and ask them to use code J on the 1099-R. Document who you spoke with and when. If they still get it wrong, request a corrected 1099-R right away.