1099R Distribution Code "PJ"

[zeros]

Client is 48 years old and came in with two 1099's. One was the code "PJ" with no amount in Box 2A (Box 1 = $5000). The other 1099 had a code of "J" with no taxable income indicated in Box 2A (Box 1 = $4000)..These are Roth's account. "Taxable amount not determined" indicated on both 1099's

What action is required on these two 1099's?

[David1980]

P would mean it's taxable in the prior year. So a 2010 1099-R showing a code P would get reported on a 2009 amended return.

J is an early distribution from a Roth IRA.

To determine the taxable amounts, you'll need to do 8606 part 4. Basically, until basis is recovered it's not taxable.

[zeros]

After tax Dollars?

I'm curious why any of this would be taxable seeing it was contributed with after tax dollar as Roth's are. Can someone explain this?

[David1980]

That's why it's not taxable until the basis is used up. However, if you do use up the basis that would be taxable (on a non-qualified distribution.)

For example, if you put $6,000 into a Roth, and withdraw $6,500 in 2 years, the taxable amount would be $500. Just the earnings.

[FEDUKE404]

Likely explanation

I've had the "PJ" code before ..... including my own return.

Such generally occurs when someone removes funds from a Roth IRA that "should not have been there in the first place" - such as client funds Roth IRA for calendar year 2010 in Jan of 2010 and in March of 2011 finds out a problem exists. The "2010 contributions" and earnings are then removed before the tax return is submitted. Such normally relates to too much overall income and related Roth restrictions.

The internal calculations are complex, but basically for every day the "bad" funds were in the account the pro-rata ("bad" versus total assets in the account) earnings/loss must be calculated. If there is a gain, it IS potentially taxable. If there is a loss, no tax consequence. (And it is also possible to remove the $5k of earnings and then have a smaller number show up on the Form 1099-R.)

The kicker is that if there were earnings, quite possible in an "up" market, then those earnings WOULD be taxable in the starting year.

(I've learned my lesson and just tell high-income folks to generally avoid Roth funding, especially if their income is nearing the limits, until all of the facts are on the table.)

Yes, Roth is indeed a four-letter word!!!

I hope this info helps!

FE

[AZ-Tax]

Distribution tax free if purchasing pajamas?

Works for me.

[Matt Sova]

Code PJ

Code PJ means that the distribution was taking while the taxpayer was asleep.

Holy cow I am losing it!

[FEDUKE404]

And then....

Code PJ means that the distribution was taking while the taxpayer was asleep.

Holy cow I am losing it!

So what should we do if the code later becomes PG ??

.......also losing it on a daily basis.....

FE