1099-R code 1 distribution no excess tax

[nolanm]

Hi all

Client receives 1099-R for $5k code 1 in box 7. Client is 55. Have entered basis of $4,800 from 2022 as no deduction was taken.

Proseries flows the $200 through to 1040 as taxable. No additional tax or 10% penalty. Does this sound correct? I can understand post tax in, post tax out, but thought code 1 for younger than 59 1/2 would charge the penalty.

Any help much appreciated

Nolan

[qbteachmt]

What account/plan type? For instance, Roth, and open at least 5 years? And is this a full distribution? If an employer plan, is this person who is 55 now separated from that employer?

A billion details would be helpful.

[nolanm]

Hi thanks for the help

Regular IRA. Client tells me she contributed post tax 6 years ago. There was no 401k at her employer so set up personally with Ameriprise. In 2023 she ask for a full distribution. 1099-R was generated and 10% Federal and State tax was withheld. 1099-R shows $5k in box 1, and box 3 (taxable amount) but box 2b is checked as taxable amount not determined.

Have a separate form 5498 from 2022  that shows fair market value end 2022 at $4800. I think my error is that I entered this $4800 as basis for 2022 in the IRA info worksheet which is why only $200 was flowing through to the 1040 as taxable. Fair market value from the 5498 from 2022 should just be ignored correct? If I omit this basis the full $5k is taxable which makes more sense?

[dkh · Accepted solution]

Yep, Sounds like you got it figured out      

[nolanm]

Thank you

[qbteachmt]

"Regular IRA. Client tells me she contributed post tax 6 years ago."

Post tax = this amount is the Basis.

"but box 2b is checked as taxable amount not determined."

Because they wouldn't know if she took it as deductible (pre-tax) or not. That's what you are explaining with how you report it, now.

"Fair market value from the 5498 from 2022 should just be ignored correct?"

Yes. It would apply for RMD purposes or if there had been a partial distribution.

"If I omit this basis"

That's not Basis. Basis = the amount she put in that has already been taxed.

"the full $5k is taxable which makes more sense?"

No. She put an amount already taxed. If this was a partial distribution, there would be a pro rata determination, such as maybe $5,000 of a $10,000 account was distributed, and her initial amount contributed post-tax would be factored, to know the % of this account that is earnings. The % earnings is the % taxable, because Basis has already been taxed.

In her case, the total distribution makes the math easy: $5,000 minus her initial contribution = amount taxable. It's the new money in that account.

Hope I got this to you in time for you to avoid her being double-taxed on her basis.

[nolanm]

ah great catch @qbteachmt 

I will email her now and check basis, may save her some $'s

Thanks again

Nolan

[qbteachmt]

The 2022 Form 5498 should show the contribution. If that is the only time she put in anything, and it was not deducted, then that is Basis.

[qbteachmt]

Oh, my mistake. I thought it was opened in 2022. Now I see the "6 years." Yes, confirm there was not ongoing activity on her part, except the initial contribution. Otherwise, you have to know pre-tax vs post-tax contributions.