1099-R, Box 2b - Taxable Amount Not Determined

When would the "taxable amount not determined" box be checked on the 1099-R?   I have a single member plan (Solo) that came to me asking what is involved to terminate the plan.  I asked if ROTH deferrals were made in addition to employer.  The answer was yes.  I was told that all contributions were deposited into a single investment account.  

Do we need to go back and calculate the earnings for the ROTH money and the Employer money?

As I write this, how can he roll his account over to an IRA?  He can't roll it all into a ROTH IRA and at the same time he wouldn't want to roll it all into a traditional IRA and lose the tax benefit of the ROTH deferrals.  He is facing a conundrum.  That said, all I am tasked to do is prepare a final form 5500 and a 1099-R based on the information provided to me.  I can (and will) advise what he should do.  What he ultimately does is his choice.

So, back to Box 2b, do I prepare one 1099-R and check that box?  Prepare a letter covering my butt and be done?

Bing sez:

If the taxable amount is not determined on your 1099-R, it means that the tax-free portion of your annuity has not been calculated¹². If you did not make any non-deductible contributions, the entire amount would be taxable¹. If there is no amount in Box 2a on your 1099-R, the taxable amount is the amount in Box 1³. If there is an amount in Box 5, this may be subtracted from the amount in Box 1³. If the Form 1099-R shows an amount in box 2a and box 2b Taxable amount not determined is not marked, the IRS is going to go by the box 2a figure.

On 11/13/2023 at 11:56 AM, Basically said:

So, back to Box 2b, do I prepare one 1099-R and check that box?  Prepare a letter covering my butt and be done?

I'm not sure I would be willing to prepare a 1099-R when I didn't know what to put on it. I think that devolves to either not doing it at all, or going back and figuring it out. 

If it's a direct rollover, then the taxable amount is clearly known - it would be zero.

That said, there are other issues at play here. For one, I don't think your client has a qualified Roth contribution program at all. The statute under 402A(b)(2) is clear that separate accounting is required for the Roth portion of the employee's account.

Second, since the distribution is bifurcated into Roth and non-Roth portions, you will need to know how much of the account is attributable to Roth and non-Roth contributions. This is true regardless of how the rollover is being done. If the non-Roth portion is being rolled over into a traditional IRA, then you need to know how much is being sent to that account. If the non-Roth portion is being rolled over into a Roth account, then you need to know the amount since it will be taxable in the year of the distribution (note that the taxable amount shown on the 1099-R would not be zero in this case, even though it is a direct rollover).

Note that a Roth account in a qualified plan may only be rolled over to a Roth IRA or to a Roth account in another plan. It can not be rolled over into a traditional IRA. See the IRS rollover chart here: https://www.irs.gov/pub/irs-tege/rollover_chart.pdf

On 11/13/2023 at 11:56 AM, Basically said:

As I write this, how can he roll his account over to an IRA?  He can't roll it all into a ROTH IRA and at the same time he wouldn't want to roll it all into a traditional IRA and lose the tax benefit of the ROTH deferrals.

C B Zeller's excellent post brings this to the forefront. Someone's gotta figure out the numbers before he can do anything. It's an opportunity...

I agree, and thank you for your posts.  One thing I need to learn is to pass on a potential client who comes to me with a mess.  That said, helping them clean up a mess can be profitable.   I need to keep in mind that building a book of business, establishing yourself doesn't happen overnight.  Slow and steady wins the race.

Basically, if you can account for the 2 money types separately, I think you're fine as far as plan qualification goes.  Although, it may depend on the following question's answer - How many years has this cohabitation-of-monies been occurring?  If not too many, shouldn't be hard to create a spreadsheet to separate the 2 year over year.

I actually came to BL looking for an answer about the need to prepare 2 1099-Rs, and saw your other post about it.  I may copy (with credit to you), but change the circumstance in my post, if you're ok with that.  Thanks!! 😉