I had this for about a year and a half and closed it due to divorce. My financial advisor who initially opened it is telling me that I should only be penalized for anything earned, not contibuted (because it was contributed post tax). The 1099 form I received from the financial institution doesn’t tell me how much I earned for 2007, only the total disbursed, which is for contributions made in 2006/2007.
I know this info is reported to the IRS, so I don’t want to do something wrong and end up audited. Can someone, with experience, tell me how to come to the right total to claim on my taxes?
Eileen
{ 3 comments… read them below or add one }
Ted
How much did you contribute to the account? Say you put in $4,000 initially and your account had since grown to $4,100 ($100 earnings), you will be penalized on this $100 earnings. The $4,000 is return of capital and no penalty.
You will need to file Form 5329 to calculate the amount of early distribution penalty and tax.
Pauline
Form 8606
You enter your contributions on this form.
Michael
You report the entire distribution on the Form 1040, line 15a (from the total disbursement figure on the 1099-R) and then report the taxable portion on 15b (interest it earned in the acct before withdrawal) from Form 8606.
There will be a 10% penalty for early withdrawal. I’m afraid divorce does not permit an early distribution.
Good luck.
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