A client brought in a 1099-R for a total distribution of a traditional IRA with a distribution code "81." I gather this is a combination of codes 1 and 8. Do I just treat it as fully taxable and subject to penalty, or do I need to get more information?
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Evan Appelman, EA -
Early penalty
Are excess contributions that are distributed, always subject to the penalty? I have never seen that code before."I am proud to pay taxes in the United States. The only thing is I could be just as proud for half the money." Arthur Godfrey -
Only earnings taxable?
I've just found out what happened: Client opened an IRA, then decided he needed the money and closed it down a few days later. So there really should be neither tax nor penalty. The only way I can make my software agree is to put $1 in the taxable amount box. (The "taxable amount not determined has been checked.)Evan Appelman, EAComment
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Not necessarily
If there are earnings (how much IN? how much OUT?) per code 8 on the Form 1099-R it would be a taxable event.Originally posted by appelman View Post
Your software should lead you to the appropriate form (likely 5329 and/or 8606?).
What falls out taxwise is related to when the funds were added/removed, whether the account increased in value (and any earnings from the "removed" money), etc.
Yes, IRAs and especially Roth IRAs can become a genuine PITA.
FEComment
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No earnings
1500 in; 1500 out a few days later.Evan Appelman, EAComment
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