I left my previous job in Dec 2017, and cashed out the relatively small amount in my 401k and Roth IRA in March 2018. I received two 1099-R forms for both the larger sum (~$2600) and the Roth IRA portion (~$160) to file with my taxes for 2018.
I'm filling out my PA state tax return and it asks what my basis of income is for both of these. Turbo Tax instructions say to contact the plan provider for help filling this part out, so I called my plan provider and quite honestly they were not helpful at all and acted like they didn't know what the question was. I managed to get the basis of income for the Roth IRA (the customer service rep I spoke to told me it was $130) - but they got quite snippy when I asked what the basis for the 401k was, and told me my question didn't make sense and that I needed to consult my tax people.
That being said, I don't have a tax accountant and I was kind of hoping I could get some guidance here if anyone is willing to help me out.
I've read conflicting info online from Googling. Some people seem to claim that the basis would basically be a 0 because it's asking what amount I contributed to the plan post-tax, to prevent double taxing me; however, someone in a Reddit thread mentioned that PA is unique and uses something called a cost recovery, and that I need to find my pre-tax contributions to the 401k over the two years I contributed, then enter that number as the basis. They claimed that in PA, even if it's pre-tax, I only get taxed on my amount that I contributed and not the employer match portion?
I'm just so confused by all the different answers I've seen online, and seeking clarity since my plan provider only made it worse. If anyone can help me out and walk me through it like I'm completely clueless when it comes to taxes, I'd greatly appreciate it!! Thanks so much.
For PA tax purposes, your basis is the sum of all your contributions into the 401k plan (do NOT count employer contributions or earnings) minus the sum of all distributions taken in previous years.
Essentially, you get your contributions back before any part of your withdrawals are taxed by PA in the case of an early distribution (box 7 coded 1 or 2).
Your contributions to a 401K would be coded "D" in box 12 of your W2.
Do you live in PA? If you do, were the contributions to your 401(k) pre-tax? That is, were they added to Wages in box 16 of your W-2? (normally, 401(k) contributions are not deductible in PA). You would notice this if (1) PA wages are larger than federal wages (box 1) by the amount of the retirement contributions, or (2) if you call the HR department of your prior employer and ask them. If this is a PA employer, they should understand the question.
Any contributions that were not deducted in PA are considered basis for PA purposes, because you have already paid tax on them.
So add up all the contributions made to your 401(k) plan in those two years (or whatever) and enter this as the basis or "cost" of the pension.
Thank you so much again for the help and I'm sorry that this isn't clicking for me. I am learning a lot during this process. I've always just used TurboTax to help me calculate things in the past, and until this year I've had nothing out of the ordinary when it comes to filing, so all of this is new to me.