I (m21) put in some money into a Fidelity Roth over the years, probably around $1,200, and let it grow while learning about stocks and ETFs. Around the holidays, I faced some money troubles and withdrew about $650. Do I need to report this withdrawal on my taxes? How should I handle it?
You need to file Form 8606, Part III. Be sure to wait for the 1099-R form from Fidelity and input it into your tax software. Answer all questions carefully, especially the section about ‘basis,’ which refers to your contributions.
Contributions to a Roth IRA and withdrawals of those contributions should not be a taxable event since they were made with after-tax dollars. Since your withdrawal is less than your total contributions, you shouldn’t need to report it as taxable income.
@Jae
So, as long as my total withdrawal doesn’t exceed what I contributed, I don’t need to declare it on my taxes, even though the account has earned money?
Ashwin said:
@Jae
So, as long as my total withdrawal doesn’t exceed what I contributed, I don’t need to declare it on my taxes, even though the account has earned money?
How do you know it’s ‘gained money’? I’d suggest reaching out to your Roth custodian (Fidelity) to verify how they classified the withdrawal. Ideally, they should have categorized the withdrawal as coming from your contributions rather than from earnings on those contributions.
You’ll need to include Form 8606. It’s essential to know the total of your contributions to Roth IRAs, as well as any prior withdrawals you’ve made.
I assume you’re referring to a Roth IRA? If so, the advice from others is correct. If it’s a Roth 401k, Roth 403b, or Roth TSP, the rules are different.
Fidelity will send you a 1099, and the withdrawal will likely be taxed as income, plus a penalty fee. In my experience, it’s not worth withdrawing money early from a Roth.
Nile said:
Fidelity will send you a 1099, and the withdrawal will likely be taxed as income, plus a penalty fee. In my experience, it’s not worth withdrawing money early from a Roth.
That only applies to earnings, not contributions.
@Tenny
It doesn’t matter—Roth withdrawals can’t be made tax-free until you’re 59½ and have had the account for at least 5 years. I made the mistake of withdrawing early and had to pay a significant tax penalty. My advisor warned me, but I didn’t listen.
@Nile
That information is factually incorrect. Roth IRA contributions can be withdrawn at any time, tax- and penalty-free. While earnings may be subject to taxes and penalties if withdrawn early, contributions are not. If you faced a large tax penalty, you may have misunderstood the type of account or received incorrect advice.
Nile said:
Fidelity will send you a 1099, and the withdrawal will likely be taxed as income, plus a penalty fee. In my experience, it’s not worth withdrawing money early from a Roth.
A quick search would have shown that this information is inaccurate. Please check your facts before sharing them.