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Thread: Reporting "Basis Recovery" on 1099R

  1. #1
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    Reporting "Basis Recovery" on 1099R

    Does your system accept taxed contributions and if so, do you calculate the Basis Recovery for tax reporting on the 1099-R form? Also, would you be willing to provide your contact information so we could discuss further?

    Thanks!
    Mark

    Mark A. Jordan, CPA CM
    Ohio Police & Fire Pension Fund
    Controller
    Phone: (614) 628-8418
    Fax: (614) 564-1565
    E-Mail: mjordan@op-f.org

  2. #2
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    Mark -
    Yes, we accept after tax contributions for lump sum service credit purchases, payroll deduction service credit purchases, transfer credit contributions from one of the other Ohio systems and a very small number of employers who still have after tax deductions for member contributions. We do keep track of pretax and after tax contributions separately and then use the total COA to calculate the cost recovery included on their monthly benefit and resulting year end 1099R using the appropriate cost recovery method. Most of our new retirees are under the simplified method although we must use the general rule on a few. We still have many older accounts that use one of the many previous cost recovery methods or where we mark them as taxable amount not determined because we don’t have the information or know what method they chose when they had an option prior to the mid 1980’s.
    Let me know if you have any questions.

    Leo Wilhelm, CPA
    State Teachers Retirement System of Ohio
    614-227-4010

  3. #3
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    IMRF does accept previously-taxed payments for the purchase of permissive service credit (past service applications). All contributions for current service are tax-deferred under IRC 414(h).

    The previously-taxed amounts are recorded in separate accounts. Upon retirement, we use the amount in these previously-taxed accounts to calculate the exclusion as specified in IRS Publication 575 (the amount of each monthly payment that represents a return of previously-taxed contributions.) The previously-taxed amount allows us to calculate the taxable amount for the calculation of federal withholding (on only the taxable amount). This also allows us to properly show (on the 1099-R), the gross (box 1) , the taxable (box 2a) and the contribution (non-taxable return of previously-taxed contributions) (box 5)

    Bruce F. Sultan
    Illinois Municipal Retirement Fund
    Operations Analyst
    (630) 706-4220
    bsultan@imrf.org

  4. #4
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    Thanks for your input. We currently calculate the basis recovery and put it in box 5 on the Members 1099-R. However, our pension system seems to have difficulty with the calculation due to the complexity of some of our business rules. This also takes a lot of time to test when new updates are being installed to our pension system. Therefore, I am looking into our options to determine how we move forward with calculating basis recovery.

    Thanks again!
    Mark

    Mark A. Jordan, CPA CM
    Ohio Police & Fire Pension Fund
    Controller
    Phone: (614) 628-8418
    Fax: (614) 564-1565
    E-Mail: mjordan@op-f.org

  5. #5
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    Hello Mr. Jordan:

    I am the tax compliance manager for the California State Teachers’ Retirement System. I saw your question regarding post-tax contributions. We accept some post-tax contributions for service credit purchases and from a handful of employers who don’t participate in the employer pick-up of member contributions. We do calculate the basis using the simplified method. There are also a handful of scenarios where we use the “taxable amount not determined” box on the 1099-R. I know calculating the basis/cost of investment has been a topic of discussion in the P2F2 community. I have done some research on the requirements in the past. I am available if you’d like to discuss further.

    Thank you,

    Carlos Gutierrez
    Tax Compliance Manager
    Accounting Section
    California State Teachers' Retirement System
    cgutierrez@calstrs.com | CalSTRS.com
    916-414-4368
    Mailing address: P. O. Box 15275, Sacramento, CA 95851-0275

  6. #6
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    Ohio PERS collects both pre- and post-tax contributions. The contributions are stored in our system using a unique employer code. When the member’s benefit is calculated in the pension system, the system stores the amount of post-tax contributions. Each check issued to the member includes a percentage of the post-tax contributions. The percentage used is based on IRS schedule and uses the anticipated number of payments, and the age of the member (or combined member and spouse age if applicable). The total gross less the percentage of post-tax dollars is stored in our system as taxable earnings and reported in box 2a on the 1099R.

    For additional information on our process, please contact:

    Faith Snow – Supervisor-Benefits
    fsnow@opers.org
    (614) 225-2307

    Or

    Tina Horn – Lead-Benefit Maintenance/Refunds
    thorn@opers.org
    (614) 225-7898

  7. #7
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    Hello Mark,

    I am responding to your question about after-tax contributions. NYS Employees' and NYS Police and Fire are 401(a) defined benefit plans. We accept after-tax contributions only when a member is rejoining the system and is purchasing previously withdrawn service credit or has elected to pay for optional service credit. In those instances, there would be no 1099-R reporting as the money is being received by our plan, not distributed.

    We do calculate the basis recovery and report on the 1099-R for distributions from the plan.

    Please feel free to contact me by email or phone if you would like to discuss further.

    Regards,
    Diane

    Diane Grant, CPA
    Project Assistant/Group Manager
    Business Process Redesign Project
    New York State and Local Retirement System
    (518) 474-2119
    dgrant@osc.ny.gov

  8. #8
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    Yes, we accept post-tax contributions. This only comes up when our members are buying eligible service time and have to dig into their own wallets for the purchased time. We will accept both pre- and post-tax money. We separate the member contributions into two buckets within our system (again, pre & post), allowing us to segregate the two types when reporting out on a 1099-R, or when members terminate and cash-out or roll-over their funds to another qualified plan.

    And yes, we do calculate the Basis Recovery (Safe Harbor) for the 1099-R, using the IRS-mandated formula (Simplified Exclusion Ratio, Notice 98-2). Our 1099-Rs reflect a difference between gross distribution and taxable amount whenever a member used post-tax money for contributions. The difference between gross and taxable in these cases, is also reported in box 5 on the 1099-R. My contact info is below, but be aware, I will be out of the office most of June.

    Martin Pell
    Accountant III, SCERA
    433 Aviation Blvd, Ste 100
    Santa Rosa, CA 95403
    ph. 707/565-8108
    fx. 707/565-8102
    mpell@sonoma-county.org

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