Using the Simplified Method to calculate taxable income, I came up with $93K. TurboTax calculated and said I have $0 taxable income using the same method. Why?

Forum|Forum|1 year ago
February 13, 2025
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Retired in 2014, been using this method every year successfully.

BillM223

The Simplified Method is a way to disperse your "Basis" (after-tax contributions) in the pension over the course of some time frame, so that only some of the basis is returned tax-free to the taxpayer each year. Note that this process is for a qualified plan (like a 401(k)). Non-qualified plans do the return of basis upfront, so if there was enough basis in the plan, you could easily have a year in which the entire distribution is tax-free.

Since we have no idea what your plan is (or it is even a plan versus an IRA), nor any of your entries, we can only speculate on the difference. So what do you have, what is on the 1099-R, and what answers did you supply TurboTax in the 1099-R interview?

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janicecamp60Author

The retirement plan was on the 'old' federal employee plan (before IRAs, etc). Every year the 1099-R lists Gross Distributions in Box 1, and 'UNKNOWN' in box 2a (taxable amount). Since March 1, 2014, we have used the Simplified Method Worksheet (SMW) to determine the taxable amount, even in years we have had a paid accountant.

For example, say the distributions were $100k annually, paid out in monthly installments over the year. No initial lump sum distribution was paid. Employee contributions were about $150K. According to our calculations on the SMW (since the beginning of retirement), we take about $5K (exact same amount each year) off of the annual distributions to get our taxable income of approximately $95K. We then subtract the $5K from the Employee contributions to see how much is left in that category.

this year, for some reason, the Turbo Tax form calculated the taxable income, using the numbers on the SMW, and came up with zero taxable income.

I'm wondering if I can find out if there is a glitch in the system, or if I somehow entered something incorrectly?

Lisa3588

Is it possible that you have recovered your total cost basis over the past 10 years (2014-2023) so that there is no remaining cost basis in your distributions?