More and more taxpayers have taken premature distributions from their 401(k) plans and most of the plan administrators have not been completing box 5 (employee contributions) or box 14 (State distribution) of form 1099R which makes it very difficult for the taxpayer to know the proper amount to report on their PA tax returns to avoid double taxation. Does the Department have any plans to require retirement plan administrators to submit copies of properly completed 1099R forms to PA where there is a premature distribution? A:
Currently, there are no plans to require plan administrators to complete Box 5 for 1099-R forms for early distributions from retirement plans. Basis or employee contributions to the plan can be affected by multiple issues and tracking or maintaining records of such basis is the responsibility of the employee and not the plan administrator. Basis in a plan can be affected by loans from the plan, rollover contributions to the plan, and/or employer contributions to the plan or other distributions from the plan.
Employee contributions to a plan are easily tracked by using an employee’s W-2 for each tax year. If there were previous distributions or loans, the plan administrator would need to know the laws of the state in which the employee lives to determine how to account for any remaining amounts in the plan. Some states may not use the cost recovery method to determine what is taxable. Rollover contributions could also involve amounts being received from a plan that is not administered in Pennsylvania and the employee would still have to provide his/her contributions to determine basis.