I have a foreign retirement account, and I did a full cash surrender and took full distribution.
How do I report this as a 1099-R , as the company does not issue one?
I know the Gains (after converting to USD).
Is the box 2, taxable account equals Total contribution(box1)? What will be the distribution code?
I assume the its long term capital gains tax and not ordinary tax based on my tax bracket
Yes, box 2 would equal total distribution
Distribution code would be 1, Early Distribution
No. It is not Long Term Capital Gains Tax, it is ordinary income and will be subject to the 10% early retirement penalty.
@Vanessa A Thanks will enter as Code 1 and shows as 10% flat penalty. So essentially fill Box1=Box 2a and leave other fields blank. Does PA personal income tax get impacted with this distribution?
TurboTax will automatically include the income on your resident state return. Commonly recognized retirement benefits are not taxable for Pennsylvania purposes if you retired and met the requirements for retirement under your employer’s plan. Income from a retirement annuity not sponsored by an employer or not part of an employer’s plan is not considered retirement income. The taxable amount reported for federal income tax purposes is reportable as interest for this type of annuity. See PA Tax FAQs
Thanks, Are we saying that its Ordinary tax (roughly 21% bracket) and additional 10% penalty?
So for $6000 its impact is rougly 31% tax or $1860 of more taxes?
Asking as I would rather wait for 7 years for retirement and then use that. please suggest
Yes, your understanding is correct. Generally, the 10% additional tax applies to retirement distributions made before you reach 59 1/2 years old.
But since you mention that your retirement is from a foreign country, there could be a treaty in place that might also affect the general rule. The IRS has provided information here to assist depending upon the type of retirement income received.
In general, if you cannot find an exception to the 10% additional tax, it would be better to wait to avoid this tax. However, in this situation, it sounds like you have already made the distribution. At this point, you cannot go back and change your mind unless you're able to roll over the funds within 60 days to another eligible retirement plan.
Hi would like to provide updates.
My 1099-R is not USA or foreign retirement fund. Its an term insurance (foreign located and does not provide 1099-R) that had cash surrender value that matured after 20 years this year (paid premium 10 years)
I am hearing from one CPA that this fund should not be subject to early penalty of 10% as its not early withdrawal and we should write a letter alongwith tax filing that it should not be treated as early withdrawal.
That being said what should be the option / distribution code I should use in manual 1099-R