Being taxed on my Roth IRA withdrawal? I thought those were tax-free?

I have a similar situation but I'm 43 and took money out for medical expenses. Does the age factor in? Also, what happens if I don't put the money back in - do I get hit with penalties even though it's a Roth?

For medical expenses, the rules are a bit different. If you're under 59½ but used the money for qualifying medical expenses that exceed 7.5% of your adjusted gross income, you might avoid the 10% early withdrawal penalty, but you could still owe taxes on any earnings (not contributions) withdrawn. The Roth contribution portion still comes out tax-free regardless of age. As for not putting the money back, there's no requirement to replace funds withdrawn from a Roth IRA. Unlike 401(k) loans, Roth IRA withdrawals aren't loans that need to be repaid. However, you can't "make up" for withdrawals by contributing more than the annual limit in future years.

Thanks for the detailed response! I just double-checked my 1099-R from Fidelity and you might be onto something. Box 7 has code "1" instead of "Q" or "T" like you mentioned. Could this be the issue? Do I need to contact Fidelity to have them correct this, or is there something I can do in my tax software to override it? Also, I haven't done any conversions from Traditional to Roth, so that's definitely not the issue. This has always been a Roth account from the beginning.

That's definitely the issue! Code "1" indicates a normal distribution, which the tax software is likely interpreting as a taxable withdrawal. Since you know this is a Roth IRA and you're withdrawing contributions (not earnings), you'll need to make an adjustment. Some tax software has an option to indicate that a distribution was from Roth contributions regardless of the 1099-R code. Look for something like "Roth contribution recovery" or similar wording in your software. If you can't find that option, you might need to contact Fidelity to request a corrected 1099-R with the proper distribution code. Alternatively, you could file Form 8606 (Nondeductible IRAs) with your tax return to properly report the nontaxable portion of your Roth distribution.

Does it work with other tax issues besides IRAs? I've got a complicated situation with some investment properties and a side business, and I'm drowning in tax forms.

Sounds interesting but how does it actually know your contribution history? I've had my Roth for like 15 years across 3 different providers and I don't even remember all the contributions I've made.

It works with pretty much all tax documents - W-2s, 1099s (all types), K-1s, and even property tax statements. It's especially helpful for investment property situations because it can identify deductions you might miss. For side businesses, it helps organize expenses and identify write-offs based on your business category. For contribution history tracking, that's what really impressed me. You can upload your previous tax returns and account statements, and it reconstructs your contribution timeline. For accounts with multiple providers, it can piece together the history as long as you have the transfer documentation. Even with incomplete records, it can help you establish a reasonable basis amount based on the information available.

Wait, this actually works? I've been trying to reach the IRS for weeks about my amended return from last year. Does it really get you past the "all our representatives are busy" message?

Sounds fake tbh. I don't believe any service can get you through to the IRS that quickly. What's the catch? They probably just take your money and you still end up on hold forever.

Yes, it absolutely works! Instead of you calling and waiting on hold, their system basically waits in the queue for you and calls you once they have an agent on the line. For amended returns specifically, they can connect you to that department so you're not transferred multiple times. For the skeptics, I understand the doubt - I felt the same way. There's no real "catch" - the system just automates the hold process. Instead of you sitting on hold for hours, their system does it. They call you when they have an agent on the line. I was connected to an IRS agent within about 28 minutes (which is still a wait, but I was doing other things during that time instead of being stuck listening to hold music).

What about using my Roth IRA for a first-time home purchase? I heard there's a special exemption? I'm 34 and have had my Roth for 6 years.

For first-time home purchases, you're in luck with that exemption! You can withdraw up to $10,000 of EARNINGS (not just contributions) from your Roth IRA without the 10% early withdrawal penalty for a first-time home purchase. And since you've had your Roth for more than 5 years, those earnings would actually be completely tax-free too. Remember, your contributions always come out first and are always tax-free regardless. The $10,000 exemption is specifically for the earnings portion, which would normally be taxable if you're under 59½. Since you've satisfied the 5-year rule and are using it for a qualifying first-time home purchase, you get the best of both worlds.

Omg yes. I did a backdoor Roth last year and got hit with a surprise tax bill because I didn't realize I had an old Traditional IRA from a previous job with like $3k in it. Made my entire conversion partially taxable because of that stupid pro-rata rule. Now I'm trying to reverse it somehow.