I have a Traditional IRA. A large portion of my 1099R box2a is "return of capital" from a Managed Payout Fund. Is the return of capital taxable under these conditions?

[dmertz · Accepted solution]

Distributions from traditional IRAs are taxable as ordinary income, not as the sale of a capital investment.

Anything in Box 2a on a Form 1099-R reporting a regular distribution from an IRA is meaningless.  If you've made nondeductible contributions to a traditional IRA, the taxable amount of the gross distribution shown in box 1 of the From 1099-R is calculated on Form 8606 automatically by TurboTax after your have answered TurboTax's questions that follow clicking the Continue button on the Your 1099-R Entries page.  If you do not have basis in nondeductible traditional IRA contributions, the entire box 1 amount is taxable.

If you were under age 59½ at the time of the distribution, you are also subject to a 10% early-distribution penalty on the taxable amount of the distribution unless you have an exception that applies.