What's the easiest way to tell which accounts in my portfolio are pre-tax and which a

[redhead50]

What's the easiest way to tell which accounts in my portfolio are pre-tax and which are post-tax?

edited (sorry cathy63)


I'm retired and taking distributions from my 403(b) accounts. I annually receive 1099-Rs for that activity.

I also have a brokerage account with inherited funds in an irrevocable trust that was funded with a parent's AFTER-tax contributions. I presently don't make any contributions to nor take any distributions from that account. I get an annual 1099-DIV for that account.

I think of the 403(b) accounts as pre-tax, eventually expect RMDs and the irrevocable trust account as after-tax, and don't expect RMDs.


How can I make sure that my investment accounts' custodians are correctly treating my pre-tax 403(b) accounts as, well, pre-tax, and my post-tax brokerage account as post-tax?

For instance, is this obvious by the type of 1099 I get at year's end for each account?


I just want to make sure that there's no confusion as I approach the (newly established) 72-y RMD age.

Thanks in advance.

[cathy63]

Well, ultimately calculating the amount of tax due is your responsibility. The custodian (probably) doesn't know if any of the money in the 403b was after-tax money, and they won't treat it any differently than any other retirement account. When you reach age 72, they will start sending you letters telling you how much the RMD should be, but they can't control whether or not you take it. For all they know, you might have other 403b accounts and you could be taking your total RMD from those rather than from the account they hold.

They will send you a 1099-R for every year during which you take a distribution. I think it's box 2 of the 1099-R that has either the taxable amount or a checkbox that says "taxable amount not determined". If you made after-tax contributions and the custodian knows about it, then they can calculate the taxable portion of your distribution. If they don't know, then they'll check the "not determined" box and you have to calculate it yourself on your tax return. It sounds like in your case, the entire distribution is always taxable though, which makes it easier.

For the irrevocable trust, are you sure that was funded with pre-tax money? It sounds more like it was after-tax money since they're sending you a 1099-DIV and you're presumably paying taxes on those dividends even though you leave them in the trust account. Or is the trust filing its own separate return?

[redhead50]

cathy63,


My typo in the initial post has been corrected. The trust account was funded with AFTER-tax dollars. Duh.


Thanks for your response.

[Gotadimple]

Quote:

Originally Posted by redhead50 What's the easiest way to tell which accounts in my portfolio are pre-tax and which are post-tax? I think of the 403(b) accounts as pre-tax, eventually expect RMDs and the irrevocable trust account as after-tax, and don't expect RMDs. How can I make sure that my investment accounts' custodians are correctly treating my pre-tax 403(b) accounts as, well, pre-tax, and my post-tax brokerage account as post-tax? I just want to make sure that there's no confusion as I approach the (newly established) 72-y RMD age. Thanks in advance.

Your custodian will not determine what is taxable and what is not. They are required to report all distributions to the IRS. What is taxable is determined when you file your income tax.

If you never deposited post-tax dollars to your 403(b), then on distribution everything you take is taxable as income - not as dividends. If you did deposit post-tax dollars you take that into account when you report the distribution on your income tax form 1040 - but it is based on your record-keeping, not the custodian's.

Your brokerage account is paying you dividends and that is taxable as dividends.

[redhead50]

Gotadimple,

Thanks for the info.

cathy63,

Also thanks for the response.

Here's the rub: The after-tax contributions were made by my parent before the trust was created. Except for the annual 1099-DIV statements for that account that came to me after the trust was created, I have no records that stipulate the origin of funds that populated the account. Obviously I also don't have my deceased parent's tax records over the decades the account was funded.

How would the knowledge of the after-tax funding of the account have been stipulated in any records that would be available to me and my future tax accountants?

Thanks in advance.

Red Head

[jazz4cash]

It’s a brokerage account not designated as IRA or other tax deferred account. These are generally funded with after tax funds so nothing unusual there. With no tax deferred status the key metric to determine taxes due at some point would seem to be your basis e.g. value of assets at time of death. Is your basis reflected in a statement anywhere?

[redhead50]

jazz4cash,


Thanks for the comeback.


I did indeed get a (stepped-up) basis document for the funds in the account when my parent died and the trust was first created.



So then, that establishes the baseline upon which all future capital gains for that account will be based, I assume.


Since I submitted that basis information to the trust account custodian, is it reasonable to assume that my trust account custodian is automatically calculating my 1099-DIV amounts based on that stepped-up basis?


And how would I know if the custodian's doing that?


And is that the right question to ask?



Thanks for your time,


Red Head

[cathy63]

Quote:

Originally Posted by redhead50 Gotadimple, Thanks for the info. cathy63, Also thanks for the response. Here's the rub: The after-tax contributions were made by my parent before the trust was created. Except for the annual 1099-DIV statements for that account that came to me after the trust was created, I have no records that stipulate the origin of funds that populated the account. Obviously I also don't have my deceased parent's tax records over the decades the account was funded. How would the knowledge of the after-tax funding of the account have been stipulated in any records that would be available to me and my future tax accountants? Thanks in advance. Red Head

If the custodian is sending you a 1099-DIV, then everyone already knows it's an after-tax account. You don't need any records or documentation to prove it. If they thought it was an inherited tax-deferred account, you would be taking distributions from it and they'd be sending you 1099-Rs, not 1099-DIVs.

When your parent died, someone gave the brokerage the death certificate and they retitled that account as an irrevocable trust with you as the beneficiary, right? When that happened, the brokerage updated the cost basis information on the securities in the account to their value on your parent's date of death. This is called a step-up in basis, and it's the reason that you don't need to know your parent's history with that account. It all got reset when you inherited it, so the history doesn't matter any more. If you ever sell the securities, the broker will issue a 1099-B in addition to the 1099-DIV and that will help your tax accountant figure out how much tax you owe on the sale.

[cathy63]

Quote:

Originally Posted by redhead50 jazz4cash, Thanks for the comeback. I did indeed get a (stepped-up) basis document for the funds in the account when my parent died and the trust was first created. So then, that establishes the baseline upon which all future capital gains for that account will be based, I assume. Since I submitted that basis information to the trust account custodian, is it reasonable to assume that my trust account custodian is automatically calculating my 1099-DIV amounts based on that stepped-up basis? And how would I know if the custodian's doing that? And is that the right question to ask? Thanks for your time, Red Head

Dividends have nothing to do with the basis. The dividend is paid by the security issuer. Suppose your trust account has 100 shares of AT&T stock in it. AT&T pays dividends of 52 cents per quarter. At the end of the year, your custodian will issue a 1099-DIV for .52*100*4 = $208. It doesn't matter if your basis in the stock is $10/share or $50/share, you're still getting $208 in dividends.

[redhead50]

cathy63,


Fantastic. That's exactly the information that I was looking for.


Your sentences:


"If the custodian is sending you a 1099-DIV, then everyone already knows it's an after-tax account. You don't need any records or documentation to prove it."


are music to my ears.


This is the absolutely best aspect about early-retirement.org: information that is common knowledge among people with your expertise, is completely unknown among others, like me, who are in desperate need of that information but don't even know how to posed the question. Thanks for staying with me to the end.



Thanks again for your time.


Red Head

[redhead50]

Quote:

Originally Posted by cathy63 Dividends have nothing to do with the basis. The dividend is paid by the security issuer. Suppose your trust account has 100 shares of AT&T stock in it. AT&T pays dividends of 52 cents per quarter. At the end of the year, your custodian will issue a 1099-DIV for .52*100*4 = $208. It doesn't matter if your basis in the stock is $10/share or $50/share, you're still getting $208 in dividends.

Cool. Thanks.


I assume then that the basis info will kick in when I sell from that account?


Red Head

[cathy63]

Quote:

Originally Posted by redhead50 Cool. Thanks. I assume then that the basis info will kick in when I sell from that account? Red Head

Yes.

[redhead50]

Quote:

Originally Posted by cathy63 Yes.

[pb4uski]

Quote:

Originally Posted by redhead50 Cool. Thanks. I assume then that the basis info will kick in when I sell from that account? Red Head

If you log onto your brokerage account there should be a screen that tells you what they have as your tax basis by purchase lot. If you look at the basis per share of the original purchase lot it should be close to the value per share when the second of your parent's died. That would indicate that they updated the basis.

All of this is assuming that there hasn't been a lot activity in the account since your last parent passed.

[redhead50]

pb4uski,


Thanks for the suggestion. It does seem as if the stepped-up basis information should be connected to my account and on-line.



I've dug around on my brokerage site but haven't turned up that info (yet).


Thanks again.



Red Head