Taxable part of pension, simplified method

Feb 19, 2007 5 Replies
M

IRS Publication 575 has a worksheet to calculate the taxable portion of qualified employee pension income. My question is about line 2 ("cost in the plan") in the case when TP's contributions were partly pre-tax and partly after-tax. What goes in line 2 in the following case, and why? --



Form 1099-R for 2006 has 70 in box 5 ("Nontaxable contributions") 3,500 in box 9b ("Total Employee Contributions").



An earlier letter from the plan says: 18,000 Tax-deferred contributions 12,000 Interest on tax-deferred contributions 3,600 Taxed contributions 7,500 Interest on taxed contributions



Thanks.



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M

Did the payer include entries in boxes 2a and 2b? Why is there a discrepancy between $3,500 in box 9b and the letter which states $3,600 after-tax contributions?

-Mark Bole

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A

Box 9b reflects your employee after-tax contributions that were not recovered in any prior years. The simplified method requires that you use the cost basis at the start of the annuity. This would be the $3600 that was reported to you in the letter.

-- Alan

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M

Yes for 2a. No for 2b.

Don't really know, but if they're supposed to be the same I'll go with the most recent communication, the 1099-R form.

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M

If it matters, 2006 was the first year receiving benefits, and they started in mid-year.

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M

Thanks for the help.

As it turns out, I just received an unexpected statement from the plan that includes the answer to the question -- the same one you gave, of course.

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