The Plan Cost is the total amount of after-tax money you contributed to the retirement plan while you were working. Since you already paid taxes on this money, the IRS allows you to get it back tax-free.
- Check Form 1099-R: Look at Box 9b (Total Employee Contributions). Note that this isn't always filled out by the payer.
- Check Your Records: If Box 9b is empty, look at your final pay stub before retirement or your year-end statements from the year you retired.
- Prior Year Returns: If you started receiving payments in a previous year, check your tax return from that year (specifically the Simplified Method Worksheet) to find the "cost at starting date" you used previously.
To complete the Simplified Method calculation, you’ll also need these specifics:
- Gross Distribution Box 1 of your current Form 1099-R. This may already be filled in for you.
- Age at Start Date Your age on the date your annuity payments actually began.
- Age at Start Date Your age on the date your annuity payments actually began.
- Combined Ages If the annuity is for you and a survivor (joint), you need the age of both parties at the start date.
You will be asked these questions as you fill out this section.
Important Note: If your 1099-R has Box 2b checked ("Taxable amount not determined"), the IRS effectively requires you to figure this out yourself using this simplified method. If Box 2a shows a specific taxable amount and you agree with it, you might not need the worksheet at all.
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