What does cost recovery basis mean on the PA-40 worksheet?

Forum|Forum|2 years ago
February 24, 2024
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TurboTax Deluxe Online

MayaD

Alumni - Intuit

If 59½ years of age, but did not retire, IRA distributions must be reported on a cost recovery basis until retirement. If retired, but did not reach age 59½, distributions must be reported on a cost recovery basis until age 59½ is reached.

The cost recovery method is a way to determine how much of a distribution from a retirement plan or annuity is taxable.

For more information: 2023 Pennsylvania Personal Income Tax Return Instructions

PA Department of revenue

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5VUWildcats

Level 2

TurboTax tells us the same thing, its link to find out more takes us to this post. It would be helpful to know how to calculate/determine this number. A link to the PA Department of Revenue is not a helpful tool.

AmyC

Level 15

Your cost basis is how much you paid in. Take a look at this information. You can see What is the cost recovery method referred to in PA instructions states:

What is the cost recovery method referred to in the personal income tax instructions?

The cost recovery method is a way to determine how much of a distribution from a retirement plan or annuity is taxable. Under the cost recovery method, an individual "recovers" all of his or her contributions to a retirement plan, before reporting any PA taxable income.

For example, if you contributed $200 a month for 80 months to a qualifying pension plan, you contributed $16,000 to the plan. If you took a lump sum distribution of $20,000 before you were qualified to retire, only $4,000 would be taxable. Based on the cost recovery method, the first $16,000 of the distribution was your own money, leaving only $4,000 as taxable.

If you recover all your contributions, and still have not reached the age of 59½, then any subsequent withdrawals are taxable until you reach the age of 59 1/2.

Gross Compensation - PA Department of Revenue shows taxable, non-taxable and the iffy income.

@5VUWildcats

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