RR benefits again

[Margaret CPA in OH]

A new client receives RRB-1099-R with which I am not so familiar.  In trying to educate myself, I got further confused.  He is a Vietnam Vet and had to retire at age 44.  He is now 70. 

In trying to understand the amounts in Boxes 3, 4, and 7, I have read that when a disabled employee annuitant (he is) reaches minimum retirement age (he has, 62 with less than 30 years), the annuitant may use the employee contribution amount shown on the form to compute the nontaxable amount of the contributory amount paid.  But I am going round and round trying to determine how to do that.

He retired 12.21.89 so Pub. 575 says he could have chosen wither Simplified Method or General Rule.  I've looked at several prior year's returns and they all seem to show 100% taxable although the employee contributions amount is higher than the contributory amount paid.  Some earlier year forms actually showed the amount taxable in a labeled box but that stopped some years ago. 

I keep reading and reading and getting nowhere fast.  I hate to have all taxable if it really isn't, I feel bad if earlier preparers did it incorrectly but  I want to do it correctly.  In ATX, I input the figures at the top matching the boxes on the form and it isn't taxable but I don't know the information to put at the bottom for Annuity Distributions because they don't know.  The start date is known but not the amount recovered after 1986.

Any help would be greatly appreciated.  I've had clients with annuities before but all information was known and this is my first (and last, I hope!) RRB client.  Thanks!

 

[Lynn EA USTCP in Louisiana]

Margaret - are you looking at the green section or the blue section or both? 

In the blue section boxes 3 and 5 are his social security equivalents.

In the green section box 3 is what the employee paid into the RRR system.  I use that and the simplified method to calculate the taxable amount.  Box 4 and box 7 (at least for my client) are the same amount and I show these as the total amount of RRR received (akin to box 1 of a 1099-R).  Then using the simplified method I calculate the taxable amount (akin to box 2 of a 1099-R).

Does this help?  If not, a call to the RRB might be in order - I have always found them to be most helpful - (877) 772-5772

[Randall]

I do it the same as lynnEA.  But if in the past he has used all the contributed amount, then 100% might be taxable going forward.  I don't know how you would know this without the prior preparers' worksheet, or at least the last one showing part non-taxable.  You might be able to re-calculate non-taxable portion estimating back to 1989.  

[Margaret CPA in OH]

Thanks, Lynn, I am asking about the green section, blue is pretty clear.  I'm not quite sure about using the Simplified Method as I don't know, nor do they, what, if any, method has been used previously.  Boxes 4 and 7 are the same and I input in ATX just as it is shown.  If I put in the starting date of the annuity as 1.1.90 (he says he retired 12.31.89), the amount in Box 3 autopopulates in the Plan cost at annuity start date.  But I don't know, nor does he, the death benefit exclusion or if using the combined ages or the amounts previously recovered after 1986.  Without those figures, the amount in Boxes 4 and 7 are not included as taxable.  His prior returns show this as taxable but no calculations for Simplified or General Method can be found.

I did call RRB and, after 45 minutes on hold, did not find them to be at all helpful.  I even provided the SSN of the client.  I was told to check with IRS or a tax preparer.  I did get a reference to an online document but read pretty much what I have already stated above. 

Again, I don't want him to have to pay tax that he doesn't owe and it seems to me he may not.  Without the data I said is missing, ATX is not calculating that it is taxable.  So am I wrong or were others wrong?

[Randall]

What amount is in box 3?  If you use the simplified worksheet, divide box 3 by say 260, then times 12 mos., it's doubtful that will be a large number.  He definitely has something in box 3 so you may be able to assume the amount calculated is the nontaxable amount and just go with that from 1990 forward to see if there is any left for the current year.  May not be too helpful but I think it might get you to an reasonable estimate.

[easytax]

8 minutes ago, Randall said:

if in the past he has used all the contributed amount, then 100% might be taxable going forward.  I don't know how you would know this without the prior preparers' worksheet, or at least the last one showing part non-taxable.  You might be able to re-calculate non-taxable portion estimating back to 1989.  

Only had two of these that I had to "start-from-scratch" and both DID NOT have any COLA's etc. each year so basically same numbers each year to work with. Each one proved to be all taxable after 19 years.  Both were regular retirement NOT any disability so I do not know if that might make a difference or not.

As Randall stated, only real workable way (no pun intended - as it will take work doing each year) is to re-calculate each year from day one.

 

[Margaret CPA in OH]

Thanks for the ongoing help.  Randall, why divide Box 3 by any number, let alone a guess at 'say 260'?  The amount there is $1893 so doing your calculation yields $87.37 but what does that mean?  As it has been since 1990, perhaps all is taxable except that I read "The contributory amounts paid of disabled employee annuitants under minimum retirement age are fully taxable and these annuitants cannot use the employee contribution amount.....However, once the disabled employee annuitant reaches minimum retirement age, the annuitant may use the employee contribution amount shown on Form RRB-1099-R to compute the nontaxable amount of his or her contributory amount paid."  Ii simply do not know how to 'compute the non-taxable portion of his or her contributory amount paid' sad to say.

This client reached that age in 2007 but I still don't understand why the annuitant may use the contribution amount...

I don't think it practical to recalculate from 1990 as it would cost the client more than the tax due, I think (hey, I get the big bucks, right?).  And chances are he paid tax on all at least until reaching retirement age.  I just feel uncertain about the ATX calculation. No matter what I put in for the amount recovered after 1986 ($800 or $80,000), it still isn't taxable. 

With all this, I am assuming that nothing is input in the boxes for regular 1009R's as Box 1 Gross distribution and Box 2a Taxable amount, right?  I selected the special type for RRB at the top, used those boxes that appeared and under the Pension and Annuity Dist Simplified Method: 1. Jan. 1, 1990; 2a $1893 (software pulled from above); 3a 42; 5a 12.

Hmmm, maybe HRB could do it better.  I've just never seen it before...

[Randall]

Pub 575, Worksheet A, Simplified Method.  The table gives the number to divide by.  My 'guess' was 260 from that table.  There are other numbers in the table depending on the situation.  But this is where you get the number to divide into the contributions amount.  In your case the number may be 240 or one of the higher numbers in the table.  This is then multiplied by 12 mos for a full year to give you the nontaxable.  Your problem is when to start and how much if any was used in the past.  I was only suggesting that since this can't be determined, you would assume it has been done and go forward.  If prior prepares used this beginning in 1990, there probably won't be any nontaxable amount remaining. 

[Margaret CPA in OH]

Thanks again so much.  I was quite surprised when, last evening, the wife showed up with return copies dating back to 1978!  So now I get to wade through them from the first year filed and, hopefully! get a much better idea of the status.  As the initial returns were self-prepared, though, it may be even more interesting and complicated.

Thanks again ALL who responded!  I feel far less lost than the first post even if the true answer isn't yet revealed.  And I also wonder why, on the ATX data entry, nothing was shown taxable no matter what I did.  Is the calculated taxable amount required to be entered into the regular 1099R box 2, taxable amount?  I wouldn't have thought so but the programmers may have had a different idea!

[Randall]

I think you  do have to calculate the taxable amount yourself and then enter it in the 1099R input screen.

[Margaret CPA in OH]

Thanks, Randall.  At least now I think I can do that!  Thanks again to all guiding me through this and special thanks to the client for bringing all those returns!  Now if only I can understand what was done all those years ago...Another adventure!

[joanmcq]

IMHO you are only going to be calculating from 2007 on, so it's not going to be that daunting. And kudos for the wife and the client's hoarding of tax returns

[Margaret CPA in OH]

Thanks, Joan, but why only from 2007? Obviously I am missing something, well, obvious, just not to me!

[Randall]

I think 2007 because you said in your original post, the nontaxable treatment would begin at age 62 and he is currently 70.  So I assume it would have begun 8 years ago.

 

[joanmcq]

Yup. ^^ and in 2007, only the simplified method is available to calculate the nontaxable portion. 

[mrichman333]

YIKES!!!!  I only have one TP with this and only two years now.  Hope I didn't do anything wrong.   I use different software, it has a input screen for RRB-1099 and RRB-1099R.  I just inputted the information and it used the simplified method to calculate everything.