Roth Conversion held less than 5 Years

[AnmarieA]

I have a client you inherited a Roth Account from their deceased father. The client took a distribution from this account in 2023 and it was coded T - held less than the 5 year period and no amount in the taxable box on the 1099-R. The ProConnect software it taxing the distribution and I am not certain why. I contacted the client and the financial advisor and they further stated the account originated from the deceased father and it was Converted from a Traditional IRA to a Roth IRA in July 2021. I was told that at the time of conversion taxes were withheld and paid by the deceased father. Should I obtain any documentation from the client to support this or should I just put -1 in box 2 on the 1099-R and override the taxability of this. Feedback welcome. Thanks!

[qbteachmt]

I googled:

inherited roth 1099-r code t

""T" informs the IRS that the holding period was not met, but the distribution is exempt from the penalty for early withdrawal because it has been paid to a beneficiary. The initial withdrawn contributions are tax-free; however, distributed earnings are taxable."

"taxing the distribution"

The whole amount? Did you enter Basis?

[AnmarieA]

I entered box 1 with the Gross Distribution box 2a left empty as the 1099-R was issued and there is not a box for basis but I check inherited in the ProConnect software. Where is there a box for "basis"? and how would I determine that amount as it is not indicated on the 1099-R. The only reason I know it was an inherited Roth as the client told me and then I inquired more from their financial advisor to find out more with regards to when the account was opened. The IRS states the 5 year rule applies from the date of the original owner (who is now deceased) and it was transferred to his daughter who is over 591/2 years of age. Do I just put a -1 in box 2a to override the taxability even though it has nothing reported in this box?

[qbteachmt]

Enter the 1099-R as you have it. Here is the help article; make sure to expand the sublevels. That includes the Form 8606 (see if your taxpayer included Form 8606 in prior years, for your reference):

https://accountants.intuit.com/support/en-us/help-article/retirement-benefits/common-questions-form-...

"The IRS states the 5 year rule applies from the date of the original owner"

Was this account or other Roth IRA open at least 5 years? There are multiple "5-year rules" for Roth. Having any Roth account at all is the one you noted; and another is Distribution of converted amounts. Each conversion has its own separate five-year period.

"and it was Converted from a Traditional IRA to a Roth IRA in July 2021"

Then if nothing else, there is Basis as of that taxable amount that was converted. Contributions and conversions are basis, because they are post-tax. A beneficiary distribution is an exception to the early withdrawal (before 59 1/2 years old), anyway. Contributions don't have a 5-year rule.

"I know it was an inherited Roth"

You would need to know which of these options your taxpayer decided to use. Perhaps it is a plain distribution-over-time scheme:

https://www.investopedia.com/roth-ira-beneficiary-rules-4770500

"Inherited a Roth" is not the same as "having an inherited Roth." One is a condition; the other is the actual account they opened (if they did this).