after tax distribution tax due?

Submitted by PAUL PILLION on Sat, 2008-03-08 13:00

Transfered 401 from Fido to Chuck 9/07. 32,000 was after tax contributions.Fido and Chuck IRA guy advised this was a one time opportunity,if desired, to “take” the after tax $’s, penalty and tax free as it was taxed as earnings at that time.

1099R Box #7 is code 2 “early distrb execp applies(under59.5)Box 2a is 0.00.Box #5 Emp contrib Roth contrib or insurence distrb =32,000.

Tax prep guys sez I owe fed and state income tax on this…there is no penalty but regular income tax is due OR box #7 is coded wrong.
I say he is wrong and a call to Fido and Chucks IRA guy also say he is wrong because”you paid taxes on it when you earned it,hence “Return of after tax distribution” aka principle. No tax or penalty due.
This was after 5 on Friday and I wanted to run this bye the pros before my call Monday
Input please as this is may an aditional 12,000 in taxes owed.
Thanks Paul

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Permalink Submitted by Alan Spross on Sat, 2008-03-08 19:45

It appears that you do NOT owe tax on the 32,000, however, I have a couple questions about your post:
1) You are talking to IRA people. Do you intend to roll over this 32,000 to a traditional IRA, but for now the money is in a taxable account at Schwab?
2) Did you separate from service from this employer in the year you turned 55 or later?
3) Do you have other 1099R forms from the employer plan?
4) Do you know if any of the after tax contributions may have been made prior to 1987?

I suspect you need a different tax preparer, but want to identify all possible conditions that surround this 1099R. In other words, you do not owe taxes, but I also want to be reasonably sure that all boxes of the 1099R reflect the situation.