How to handle 1099-R and Form 5498 for Roth IRA contribution and withdrawal?

This is a common misunderstanding with Roth IRA distributions. You're right that Roth IRA withdrawals of contributions (not earnings) should be tax-free, but the problem is that the 1099-R form doesn't distinguish between contributions and earnings. The form just reports the total distribution. What you need to do is file Form 8606 (Nondeductible IRAs) with your tax return. Part III of this form is where you calculate the taxable portion of your Roth IRA distribution. Since your withdrawals were less than your total contributions, you should be able to establish that most or all of your distribution was a return of contributions and therefore not taxable. The tax software should walk you through this, but you might need to look for a section about "Retirement distributions" or specifically about Form 8606. Make sure you enter both your 1099-R and information about your contributions.

I went through something similar last year and discovered taxr.ai (https://taxr.ai) which was a lifesaver for my Roth IRA withdrawal confusion. I had a mix of contributions and conversions over the years and was totally lost trying to figure out what was taxable. Their system analyzed my 1099-R and 5498 forms and showed me exactly how to handle it on my return. The best part was they explained which portion was truly taxable versus what was just being reported as a distribution. They also helped me properly document everything so I wouldn't trigger an audit flag. For Roth IRA withdrawals like yours, having that clarity really saves you from overpaying.

I just tried taxr.ai for my Roth IRA withdrawal issue and it was incredibly helpful! After uploading my 1099-R and 5498 forms, it immediately identified that my distribution was entirely from contributions and showed me exactly how to fill out Form 8606 correctly. The system explained that my tax software was calculating things incorrectly because it didn't have my full contribution history. The step-by-step guidance saved me from paying about $2,900 in unnecessary taxes! Their explanation about the "ordering rules" for Roth distributions made everything clear - contributions come out first tax-free, then conversions, and finally earnings. Definitely recommend for anyone with retirement account distribution questions.

If you're still struggling after trying to fix this yourself, you might want to try Claimyr (https://claimyr.com). I had a similar Roth IRA withdrawal issue last year that I just couldn't resolve through my tax software. After weeks of trying to reach someone at the IRS with no luck, I used Claimyr and they got me connected to an actual IRS representative in about 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The IRS agent walked me through exactly how to report my Roth IRA distributions and confirmed that my contributions should come out tax-free. Having that direct confirmation from the IRS gave me the confidence to file correctly and dispute what my tax software was calculating. It saved me thousands in incorrect tax.

I was totally wrong about Claimyr. After struggling with my Roth IRA withdrawal issue for weeks, I decided to try it despite my skepticism. Within 20 minutes, I was talking to an IRS representative who specialized in retirement accounts! The agent confirmed exactly what others here said - that I needed to file Form 8606 Part III to show that my distribution was a return of contributions and not taxable. The agent even emailed me the relevant sections of Publication 590-B while we were on the phone. They explained that the 1099-R doesn't distinguish between contributions and earnings, which is why my tax software was calculating things incorrectly. Without this help, I would have overpaid nearly $4,000 in taxes! Definitely worth using if you're dealing with complex IRA distribution issues.

Something important that no one has mentioned yet - check box 7 on your 1099-R form. There should be a distribution code there. If it shows code "J" or "T", that indicates an early distribution from a Roth IRA. This is important because different codes can affect how the distribution is treated. Also, make sure you've been tracking your "basis" in your Roth IRA over the years. Your basis is basically the total of all your contributions, and you'll need this number to properly fill out Form 8606. Even though your 5498 forms aren't submitted with your return, they're crucial for calculating your basis accurately.

Has anyone dealt with this situation using TaxSlayer? I'm having the exact same Roth IRA withdrawal issue but I can't find where to enter my contribution information to offset the 1099-R. The software keeps treating my entire withdrawal as taxable.

I went through this exact situation last year and it's definitely stressful! The good news is that you're absolutely right - Roth IRA withdrawals of contributions should be tax-free. The key issue is that your tax software doesn't automatically know how much of your withdrawal was contributions versus earnings. Here's what worked for me: First, make sure you have Form 8606 Part III completed correctly. You'll need to track down your total Roth contributions from all years - this becomes your "basis." Since you contributed $15,000 total and withdrew $13,200, your entire withdrawal should be considered a return of contributions and therefore not taxable. In FreeTaxHelper, look for a section on "Retirement Account Distributions" or specifically "Form 8606." You might need to manually override what the software is calculating based on just the 1099-R. Don't panic about that $3,800 tax bill - once you properly account for your contribution basis, it should drop significantly or disappear entirely. Keep good records of all your contributions going forward, as you'll need this information for any future withdrawals. The 5498 forms are indeed just informational, but they're invaluable for tracking your basis over time.