My mother and father took total distributions of their Roth IRAs to buy a first-time home; i.e., $11,000 and $17,000, respectively. (Both had cost bases of $2,000.)
As I understand it:
$11,000 of my mother’s $11,000 distribution was untaxed due to the $10.000 first-time homebuyers exception and $2,000 cost basis.
$12,000 of my father’s $17,000 distribution was untaxed due to the $10.000 first-time homebuyers exception and $2,000 cost basis; i.e., $5,000 of my father’s $17,000 distribution was taxed.
My father entered $3,000 for “Untaxed portions of IRA distributions and pensions” based on $11,000 + $17,000 - 2 x $10,000 - $5,000.
I think he should have entered $23,000 based on $11,000 + $12,000.
What form is OP talking about? Which lines on the form? Without viewing the return to see what figures were entered where, it’s not a good idea to try and give situation-specific advice.
When my parents took total distributions of their Roth IRAs, they were “qualified” distributions under the first-time homebuyers exception. This means:
Distributions of all contributions, i.e., $2,000 for each Roth IRA, are penalty-free. (By the very nature of Roth IRAs, both $2,000 contributions were already taxed.)
The $9,000 balance of my mother’s Roth IRA and $10,000 of my father’s Roth IRA were distributed penalty-free and tax-free.
$5,000 of my father’s Roth IRA distribution was taxable income.
When calculating the amount “Untaxed portions of IRA distributions and pensions”, my father does not want to include those amounts that were tax-free under the first-time homebuyers exception.
I think the amount in “Untaxed portions of IRA distributions and pensions” should have been the untaxed portion of the Roth IRAs that they used as a down-payment on the purchase of their first-time home.
He and I both agree that the two original post-tax contributions and the $5,000 reported as taxable income should be excluded.
My father’s logic is if he did not purchase a home, the $10,000 would still be locked up in the Roth IRA. But he did use the IRS tax exception to buy a house and by law he had to use the $10,000 towards the purchase, so it is no longer available to pay for education and therefore should not be included in “Untaxed portions of IRA distributions and pensions”.
Sorry, glopez, I’m a little slow today, but I think I’m up to speed now and understand your question. I believe you are referring to line 92.e. on the 2022-2023 FAFSA. The entry on that line is derived from several entries on the 2020 1040 tax form, specifically, in the case of IRA distributions, lines 4a and 4b. Did your parents file a joint 1040 for tax year 2020? What are the amounts on 1040 lines 4a and 4b? Did your parents do any IRA rollovers in 2020?