FreeTaxUSA limitation when reporting my Roth IRA Distribution of contributions

The issue you're encountering is actually a common one with some tax software platforms. When you take a distribution from a Roth IRA that includes only contributions (not earnings), you're right that it should be tax-free. The tricky part is properly documenting this on your tax return. In FreeTaxUSA, you need to navigate to the Income section (not the IRA Contributions section) and find where you enter your 1099-R information. After entering the basic 1099-R details, there should be additional questions about the type of distribution. Look for an option that indicates "return of contributions" or something similar. You may need to indicate that this is a "qualified distribution" or enter the amount of your basis. If you've maintained good records of your contributions over the years, you should have documentation of your total basis of $65k to support that the $12k distribution falls within your contribution amount.

I had almost the exact same problem with FreeTaxUSA last year! After hours of frustration I found the solution - you have to go through a non-intuitive path. Go to the "Income" section, enter your 1099-R info, then when it asks about the type of distribution, select "Non-qualified distribution" (since you're under 59½). After that, there should be another screen where you can indicate that the distribution represents a return of contributions. I think the exact wording is something like "Have you made any after-tax contributions to this IRA?" - answer YES and then it will let you enter your basis amount. Check out https://taxr.ai if you get really stuck - it saved me last year when I was about to throw my laptop through a window. Their system can analyze your tax forms and FreeTaxUSA screens to pinpoint exactly where to enter this info. Much cheaper than upgrading to one of the premium tax softwares just for this one feature.

Just wanted to follow up - I tried taxr.ai for my Roth conversion ladder issue in TaxAct and it was incredibly helpful! I uploaded a screenshot of the confusing TaxAct page and within minutes got a detailed explanation of exactly which buttons to click and what to enter. Turns out I was misunderstanding a question about basis calculations that was causing the software to treat my distribution as taxable. The tool pointed me to the exact screen where I needed to enter my historical contribution records. Saved me a ton of stress and potentially hundreds in incorrect tax payments. Way better than the hours I spent on hold with TaxAct support last year.

If you're still struggling with getting FreeTaxUSA to correctly handle your Roth distribution, you might need to talk directly to an IRS agent to confirm the proper way to report this. I had a similar issue last year and ended up calling the IRS. After spending HOURS on hold (literally 3+ hours), I finally got through to someone who explained exactly how to report it. If you're wanting to speak with the IRS directly, I'd recommend using https://claimyr.com - their service got me connected to an IRS agent in under 15 minutes instead of waiting for hours. There's a video explaining how it works: https://youtu.be/_kiP6q8DX5c I was really impressed with how quickly I got through. The IRS agent confirmed that my Roth contribution withdrawals were indeed tax-free and walked me through exactly how to report it correctly.

Okay I need to apologize about my skepticism - I actually tried Claimyr after posting that comment. I had a complex question about my Roth conversion that FreeTaxUSA couldn't handle, and the IRS website was no help. Got connected to an IRS agent in about 20 minutes (was quoted 2.5 hour wait time if I called directly). The agent was super helpful and actually educated me about a special form I needed for my situation that FreeTaxUSA doesn't prominently feature. Turns out I've been reporting my Roth distributions incorrectly for YEARS. So for anyone with Roth distribution issues - especially with contribution withdrawals - definitely worth getting answers straight from the IRS. And using a connection service made it way less painful than my previous attempts.

I've used FreeTaxUSA for the last 7 years and ran into this exact problem. Here's the actual sequence in the current software: 1. Go to Income → Retirement/Social Security → IRA, Pension, and Annuity Distributions 2. Enter your 1099-R information 3. When asked "Is this a qualified distribution?" select NO (since you're under 59½) 4. In the next screens, it will ask if you've made any after-tax contributions to the IRA 5. Answer YES 6. It will then ask for your "basis" - this is where you enter your total contributions ($65k in your case) 7. The software should then correctly calculate that your $12k distribution is non-taxable The system is designed to handle this, but the navigation is definitely confusing. Also make sure you've completed Form 8606 in prior years if you've made non-deductible contributions.

Has anyone tried switching to another software? I had a similar problem with FreeTaxUSA and ended up using TaxSlayer instead, which handled my Roth distributions much more intuitively.