Can I withdraw from Roth IRA without penalty if amount is less than contributions? 1099-R code 1 issue

You're absolutely right in your understanding. Contributions to a Roth IRA can be withdrawn at any time without taxes or penalties - that's one of the main benefits of a Roth IRA. Since you withdrew less than your total contributions, the entire amount should be considered a return of contributions and not subject to any penalties or taxes. The 1099-R form with code 1 is likely an error by your financial institution. Code 1 typically means "Early distribution, no known exception," but in your case, there is a known exception - you're withdrawing contributions, not earnings. The form should probably have code J or Q, which indicates a distribution that's not subject to penalty.

I ran into this exact same problem last year! The financial companies often don't track your contribution basis, so they just default to code 1 on the 1099-R. I found this amazing tool called taxr.ai (https://taxr.ai) that really helped me sort through this mess. It analyzed my Roth IRA contribution history and generated a detailed report showing all my past contributions, which made it super easy to prove I was only withdrawing contributions. The documentation it created helped me fill out Form 5329 correctly and I avoided the penalty completely. The report even explained exactly why my withdrawal qualified as penalty-free.

I wanted to follow up about my experience with taxr.ai after my skeptical question above. I decided to give it a try since I had a similar Roth IRA issue with withdrawing contributions but getting coded as a taxable distribution. The tool was actually really helpful - I just uploaded my year-end statements and it created this detailed contribution tracking document that made it super clear I was only withdrawing original contributions. When I was filing my taxes, I just referenced their report to fill out Form 5329 correctly. My refund went through without a hitch, no questions from the IRS. I was pleasantly surprised since I was pretty skeptical at first!

If you're having trouble getting your financial institution to fix the 1099-R, you might want to try Claimyr (https://claimyr.com). I used them last year when I had a similar issue with incorrect coding on my retirement distribution forms. I had been trying to reach the IRS for weeks with no luck. Claimyr got me connected to an actual human at the IRS in about 25 minutes when I'd previously been hanging on hold for hours and getting disconnected. They have this service where they wait on hold for you and then call you when an agent picks up. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent confirmed exactly what to do with my incorrectly coded 1099-R and explained how to document everything properly so my return wouldn't get flagged.

Well, I'm back to eat my words from my skeptical comment above. After struggling for weeks to get through to the IRS about my misreported retirement distribution, I finally tried Claimyr. Within 35 minutes I was talking to an actual IRS representative who walked me through exactly how to handle the Form 5329 exception for my Roth withdrawal. The agent confirmed that I don't need a corrected 1099-R as long as I properly document the exception on Form 5329. She also gave me specific notes to include with my return to prevent any confusion. Honestly, that 35-minute call saved me hours of frustration and potentially prevented a much bigger headache down the road. Never thought I'd be recommending a service like this, but it actually delivered.

Just wanted to add that you should keep good records of all your Roth IRA contributions over the years. I learned this the hard way! The financial institutions don't track your basis for you, and if you ever get audited, the burden is on you to prove those were contributions coming out, not earnings. I recommend creating a simple spreadsheet with dates, amounts, and which tax year each contribution was for. Keep copies of your account statements showing the contributions too. This makes it super easy if you ever need to withdraw or if there's any question about what portion of your Roth is contributions vs. earnings.

Has anyone tried just calling the financial institution directly? Sometimes these 1099-R coding issues are just simple mistakes they can fix by issuing a corrected form. My brother had this happen last year with Fidelity and they sent him a corrected 1099-R with the right code within a week.