The Video below has been prepared by a tax attorney at The McGuire Law Firm to provide additional information regarding Form 8606.  You can speak with a tax attorney by contacting The McGuire Law Firm at 720-833-7705.

John McGuire is a tax attorney and business attorney in Denver, Colorado.  Mr. McGuire assists clients with tax matters from tax planning and the tax implications of business transactions to tax matters before the IRS such as IRS audits, United States Tax Court cases and IRS debts.

Generally, you would not include in your gross income qualified distributions from a Roth IRA or distributions that are a return of your regular contributions to your Roth IRA.  Furthermore, distributions from a Roth IRA that you had rolled over tax free into another Roth IRA would generally not be included within your gross income, and thus not be subject to tax.

The above being stated, one must consider the basis of distributed property and know what distributions are considered qualified distributions.  When taking distributions from a Roth IRA, the basis of property being distributed is its fair market value as of the date of distribution.  This is the case regardless of whether or not the distribution from the Roth IRA is a qualified distribution. 

A qualified distribution from a Roth IRA could be any of the following: A distribution made after the five year period that begins the first taxable year a contribution was made to the Roth IRA and the distribution was made after you were 59.5 years old, made because you were disabled, made to a beneficiary or to your estate, or meets the requirements for “first home” exception. 

Are the distributions from a Roth IRA subject the 10% additional tax, such as early withdrawals from a 401(k)?  Distributions that are not qualified distributions may be subject to an additional 10% tax or penalty.  There are a number of exceptions that apply and thus could provide relief in regards to the 10% additional tax.  For example, if you used the distributions to pay certain medical expenses or for higher education expenses, you may not have to pay the additional 10%.  Further, when the IRS levies a Roth IRA, the additional 10% tax generally would not apply because the deemed distribution to the taxpayer was not necessarily a voluntary distribution to the taxpayer.

The above article was written by John McGuire, a tax attorney and business attorney at The McGuire Law Firm.  The McGuire Law Firm has offices in Denver, Colorado and Golden, Colorado.