If 1099-R shows "2" in box 7 and IRA/SEP/SIMPLE box unchecked, what should you enter in 1040 line 16a and 16b?

[bacaj1202]

My taxable amount is less than the gross distribution. I entered gross into line 16a and taxable into 16b. Now it is asking if I entered taxable on 16b on last year's 1040. The firm I went to used the gross distribution as the 2016 1040 line 16b. When I recently asked them why, they said you enter 1099R gross amount into 16b because of "2" and the unchecked box. Were they correct in what they did on 2016 taxes? What should I enter for 2017 line 16a and 16b? If I am correct in what I'm entering this year, should I select "yes" to "did you enter the taxable amount on 16b for 2016?" If I select no, it wants me to calculate using the simplified method.

[MichaelL1 · Accepted solution]

The place you went to last year should have entered the amount from box 2a as the taxable amount, so answer "yes" and take the 2016 back to them to Amend as you overpaid your taxes in 2016.  

They are incorrect. 

The 2 means you are retired below 59 1/2 and have an exception from the penalty for withdrawing prior to 59 1/2.  

You paid into your plan with money that did not reduce your taxes and now are recovering some of that money, and that is why it is not taxed and box 2a is smaller than box 1 of the 1099R. 

[bacaj1202]

Thank you so much for that information! It is greatly appreciated. So just to confirm, I should use 1099-R box 1 (gross distribution) for 1040 line 16a and 1099-R box 2a (taxable amount) for 1040 16b? (You had mentioned in your last message to use box 2b, but I believe you mean box 2a). Please advise.

[MichaelL1]

Yes, that is correct and I just edited the answer to show 2a as you can print this and give it your 2016 preparer.  I am a CPA with over 40 years of tax work. Thank you for pointing the 2a and 2b to me as I work with numerous forms throughout the day.