Taxpayer provided a 1099-R that has box 2b marked. Taxpayer informed me that he paid into his retirement plan with post-tax contributions. Can you more knowlegeable tax preparers help me out - would the employer have provided taxpayer with a document at his retirement stating his post-tax contributions. He received $36,000 for 2006 and I think he is incorrect in his thinking he paid post-tax contributions, but wanted to see what you all thought!
-
-
It's possible
That he had rolled over from a company plan into an IRA, so form 8606 is used.Originally posted by peggysioux View PostChEAr$,
Harlan Lunsford, EA n LA -
Well... you didn't say if the little box for "IRA" is checked in box 7. If it is.. the trustee probably doesn't know the status of post-tax contributions as that is determined at the 1040 tax level with the contribution not being allowed as a deduction usually due to income limitations. If it is an IRA the taxpayer each year they get distributions the portion taxable and not taxable is determined by formula on form 8606, "Non Deductible IRAs", attached to the taxpayers 1040.
If it is not an IRA the trustee of the account is required to keep track of the post-tax contributions and report them in box 5 of the 1099R with the same amount reducing the amount in box 2.
edit: post-tax contributions are not allowed to be rolled over from a pension plan to an IRA.Comment
-
1099-r
The little box for IRA in box seven is not marked. Payment is from "Contra Costa County Employee's Retirement Association. I think he just thinks it is post-tax, but he specifically told me that money was taken from his wages each pay period, but the amount that was taken from wages was taxed.Comment
-
According to the instructions for Form 1099-R, box 2b is checked if the payer was unable to determine the taxable amount of the distribution. There could be a number of reasons for this.Originally posted by OldJack View Post
However, for purposes of answering the question from the original post, the taxpayer may be correct. He may have in fact contributed after tax money into his plan, and now it is coming out with box 2b checked telling him the payer didn’t calculate the taxable and tax free portion. However again, as OldJack pointed out, if there are after tax contributions in the account, the payer should list this in box 5. The instructions for box 5 says the following:
Box 5. Generally, this shows the employee’s investment in the
contract (after-tax contributions), if any, recovered tax free this year;
the part of premiums paid on commercial annuities or insurance
contracts recovered tax free; or the nontaxable part of a charitable
gift annuity. This box does not show any IRA contributions.
If there isn't anything listed in box 5 with box 2b checked, then the taxpayer is going to have to provide you with more information, such as the total contributions over the years that went into the account after tax. Then use one of the cost basis calculations discussed on page 13-21 in TTB to determine the taxable/tax free portion of the distribution.Last edited by Brad Imsdahl; 02-11-2007, 10:00 AM.Comment
-
He could be Right
Peggy Sue - If you weren't around a few years ago (I'm going to say around 1990), I need to take you back.
In the "old days" (meaning only people like me remember), a payer was allowed to issue a 1099-R without determining the taxable amount. IRS figured they were leaving too many opportunities for taxpayers to bail out of paying taxes, so one year they created the requirement for all payers to determine unequivocably how much of a distribution was taxable.
At the time they did this, many taxpayers had been paying in to their retirement plans for thirty or forty years. Tax-deferred contributions had only been around since the late 70s and IRAs had only been around since the mid-70s. So for much of this period of 30-40 years, there was no accounting system to distinguish between pre-tax and post-tax contributions. So when the requirement was placed on them, the custodians of these retirement funds had not kept up with employee contributions separately into taxable and nontaxable buckets.
So how did they respond to the IRS requirement? Most of them simply issued the 1099 with all of the money showing as taxable, and the checkbox stating "taxable amount not determined." One of the worst was TIAA-CREF. I had a retired professor with a 1099 from them showing a $200,000 distribution, all taxable. The taxpayer had been contributing to TIAA since 1952, at least 20 years before there was any concept of tax-deferred contributions!
The IRS (of course) just wanted the money, and said the matter should have been resolved between my client and TIAA-CREF. TIAA wouldn't budge, no doubt because no one there wanted to research 40 years of accounting records.
So, Peggy Sue, after all this lengthy post, your client may also be suffering the same fate, and he may be telling you the truth.Comment
-
1099-R Taxable
So, anything after the late 1970's, employers are obligated to track pre- and post-tax contributions and show the post-tax contributions in box 5, is that correct? Taxpayer is under the impression he paid into the retirement plan post-tax up until he retired a few years ago. I understand employers not being able to track prior to changes; but if taxpayer is correct, shouldn't there be something in box 5 if there were post-tax contributions in the 1990's and 2000's??Comment
-
1990
Peggy, actually they didn't have the requirement until around 1990. So it's anyone's guess what they're putting in as the "taxable amount."
IRS will expect the "taxable amount" to be reported even if the box is checked for "taxable amount not determined."Comment
Comment