here is the answer Chat GPT gave me, quite helpful, hope it is right:
For IRA and 401(k) withdrawals, the classification on Form 1116 depends on the source and nature of the income. Here's how the IRS typically handles these accounts:
1. IRA Withdrawals and 401(k) Distributions:
- General Income Category: Withdrawals from traditional IRAs, 401(k)s, or other similar retirement accounts are generally classified as general income for Form 1116 purposes. These are not considered passive income because they are based on deferred earnings from employment or contributions during active work years.
2. Roth IRA Withdrawals:
- Tax-Free Withdrawals: If you withdraw from a Roth IRA and meet the IRS rules for qualified distributions, it does not generate taxable income and would not appear on Form 1116.
- Non-Qualified Withdrawals: If the withdrawal does not meet the qualifications, the taxable portion (earnings) may fall under general income, while any return of contributions remains non-taxable.
3. Foreign Tax Credit Allocation:
- If foreign tax was paid on income generated within an IRA (e.g., dividends, interest from foreign investments), the foreign income might need to be classified separately. However, once withdrawn, the character of the income is typically lost, and it becomes ordinary income for tax purposes.
4. TurboTax or Tax Software Handling:
- Tax software like TurboTax might require you to manually specify income categories for Form 1116. You should categorize IRA and 401(k) withdrawals under the general income category unless specifically instructed otherwise by a tax advisor or if the IRS has issued guidance to the contrary for your situation.
If you're still unsure, consulting a tax professional can help ensure proper classification for your situation, particularly if you are dealing with foreign tax credit claims.
