If you've satisfied the criteria for taking a qualified distribution from your Roth IRA, pop the champagne, because the entire withdrawal comes out completely tax free. However, even though qualified distributions are tax free, you still must report them to the Internal Revenue Service on your income tax return.
Qualified Roth IRA Distributions
Qualified distributions from Roth IRAs must meet two sets of criteria. First, you must have waited at least five years since January 1 of the first tax year you made a contribution to the Roth IRA. For example, if you made your first Roth IRA contribution during the 2012 tax year, you satisfy the five-year holding period starting in 2017. Second, you must be 59 1/2, permanently disabled or using up to $10,000 for a first home purchase.
Tax Form Options
When you have a Roth IRA distribution, you can use Form 1040 for your tax return or you can select the shorter Form 1040A to file your taxes. You can't, however, use Form 1040EZ because it doesn't have a line item for IRA distributions. On Form 1040, IRA distributions are reported on lines 15a and 15b while on Form 1040A, IRA distributions are reported on lines 11a and 11b.
How to Report
At the end of the year, you'll receive a Form 1099-R that documents your Roth IRA distribution. The form should have a "Q" in box 7 to show it is a qualified Roth IRA distribution. When you file your income taxes, report the total amount of the distribution as a non-taxable IRA distribution, and "0" is reported as the taxable portion of the IRA withdrawal.
Your qualified Roth IRA distributions aren't the only consideration when determining which tax form to use. Though qualified Roth IRA distributions can be reported with Form 1040A or Form 1040, you may have to use Form 1040 for other reasons. For example, if you have $100,000 or more in taxable income, want to claim certain tax credits or adjustments to income, or want to itemize your deductions, you must use Form 1040.
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