1099-R Box 2b Checked: Taxable Amount Not Determined

When Box 2b on your Form 1099-R is checked, marked “Taxable amount not determined,” the payer is telling you they don’t have the records to separate the taxable and non-taxable portions of your distribution. The figure sitting in Box 2a is usually just a copy of Box 1, the full gross distribution, used as a placeholder. That placeholder is not what you owe tax on. You calculate the taxable portion yourself using your own records of after-tax contributions, then report the correct number on your return.

What Box 2b Is Telling You

The unknown piece is your basis: the after-tax dollars you put into the account that have already been taxed once and shouldn’t be taxed again on the way out. Payers check Box 2b because they can’t compute it. Sometimes they inherited the account from another custodian and don’t have the full contribution history. In other cases they’re simply not required to figure it out. For traditional IRA distributions, the payer is not required to compute the taxable amount at all.¹ The same is true for Roth IRAs.

So the box being checked doesn’t mean anything is wrong with the form. It means the calculation is your job. Every dollar of basis you can document is a dollar you don’t pay tax on. Every dollar you can’t document, the IRS will treat as fully taxable.

Find Your Basis

How you establish basis depends on the type of account the distribution came from.

Traditional IRA

If you ever made nondeductible contributions to a traditional IRA, your basis lives on Form 8606, Nondeductible IRAs.² You should have filed one for every year you made a nondeductible contribution. Line 14 of your most recently filed Form 8606 shows the total remaining basis carried forward.³

Never filed one when you should have? You can reconstruct the history. Pull old tax returns and look at the IRA deduction line for each year — a contribution that was not deducted counts as basis. Brokerage statements and any Forms 5498 the custodian sent will show contribution amounts. You can file late Forms 8606 for prior years, and the $50-per-year penalty for failing to file can be waived if you show reasonable cause.⁴

401(k), 403(b), or Other Qualified Plan

Your basis is any after-tax employee contributions you made — money that came out of your paycheck after taxes were withheld, not pre-tax deferrals. Contact the plan’s recordkeeper and ask for a statement of your cumulative after-tax contributions. Most administrators keep these records even after you’ve left the employer.

Annuity

For a commercial or employer-provided annuity, basis is the total of premiums you paid with after-tax money. The original contract, the purchase confirmation, and records of any additional premium payments are what you need. Without them, the IRS will treat your basis as zero and the full distribution as taxable.

The Traditional IRA Calculation and the Pro-Rata Rule

This is where most people trip up. You cannot designate specific dollars in a distribution as coming from your nondeductible contributions. Every dollar you withdraw is treated as a proportional mix of taxable and non-taxable money, based on how your basis compares to the total value of all your traditional IRAs.⁵

The math runs on Form 8606. Divide your total nondeductible basis by the combined December 31 balance of all your traditional, SEP, and SIMPLE IRAs plus the distribution amount. That ratio is the non-taxable percentage.⁶

A worked example. You took a $10,000 distribution. Your total nondeductible basis is $30,000. Your combined traditional IRA balances on December 31 are $140,000. The denominator is $150,000 (the $140,000 plus the $10,000 you took out). The non-taxable ratio is $30,000 ÷ $150,000, or 20%. So $2,000 of the distribution is a tax-free return of basis and $8,000 is taxable. Form 8606 then updates your remaining basis to $28,000 for future years.

The trap: the denominator includes every traditional, SEP, and SIMPLE IRA you own, not just the account that made the distribution. If you have $500,000 spread across traditional IRAs and only $10,000 in basis, only a sliver of any withdrawal will be non-taxable, no matter which account it comes from.

The Qualified Plan Calculation

Qualified plan distributions with after-tax contributions use one of two approaches, depending on whether you’re getting periodic payments or a single lump sum.

Periodic Payments: The Simplified Method

If you’re receiving annuity-style payments from a qualified plan and Box 2a is blank or unreliable, use the Simplified Method.¹ Divide your total after-tax contributions by an anticipated number of monthly payments from an IRS table keyed to your age at the annuity starting date. The result is the tax-free portion of each monthly payment.

Example: your basis is $36,000, and the table assigns 310 anticipated payments for your age. Each month, $116.13 of the payment is tax-free. Multiply that by the number of payments received during the year, then subtract from the total received to get the taxable amount. The General Rule uses a different, life-expectancy-based calculation and applies in narrower situations described in Publication 939.⁷

Lump Sum

If you received the whole balance in one distribution, subtract your after-tax basis from the gross distribution. What’s left is fully taxable. If you’re under age 59½, that taxable remainder may also trigger a 10% early distribution tax unless an exception applies, which you’d report on Form 5329.⁸⁹

Roth IRAs and Box 2b

Roth 1099-Rs routinely arrive with Box 2b checked because the payer isn’t required to figure the taxable amount.¹ The tax treatment is different from a traditional IRA. Roth contributions went in with after-tax dollars, and qualified distributions come out entirely tax-free.

A distribution is qualified if the account has been open at least five tax years and you are at least 59½, disabled, or the beneficiary of a deceased account holder. When those conditions are met, the whole thing is non-taxable and you report zero on the taxable line. The calculation still runs through Form 8606, Part III.²

For non-qualified Roth distributions, an ordering rule governs what’s coming out. Contributions come out first, tax-free. Then conversions, tax-free once the five-year clock for that conversion has run. Then earnings, taxable and potentially subject to the 10% early distribution penalty. To apply the ordering rule, you need to know your total lifetime Roth contributions and the amount and timing of any conversions.

Report the Right Number on Your Return

Once you’ve calculated the taxable portion, put it on the correct line of Form 1040. IRA distributions go on Lines 4a (Box 1 gross) and 4b (your calculated taxable amount). Pensions and annuities go on Lines 5a and 5b.

If nondeductible IRA contributions are anywhere in the picture, attach Form 8606 to the return.⁶ The form runs the pro-rata calculation, produces the number that goes on Line 4b, and carries updated basis forward for future years. If you used the Simplified Method, keep the completed worksheet with your records. Most tax software will handle both once you enter the 1099-R and answer that Box 2b is checked.

What It Costs to Get This Wrong

Two form-specific penalties apply to Form 8606. Failing to file it in a year you were required to costs $50 per missed year, waivable for reasonable cause.⁴ Overstating nondeductible contributions or basis costs $100.

Those are the smaller numbers. The real exposure is the accuracy-related penalty. If underreporting your taxable amount causes an underpayment, the IRS can assess a penalty of 20% of the underpayment. It applies to negligence and to a “substantial understatement,” defined for individuals as the greater of 10% of the tax that should have been shown on the return or $5,000.¹⁰ Interest runs on the penalty from the return’s original due date.

The opposite mistake — claiming zero basis when you actually had some, and paying tax on your own after-tax money — doesn’t trigger any penalty. It just costs you money the IRS never wanted. You can amend using Form 1040-X, but only within three years of the original filing date or two years of paying the tax, whichever is later.

Records to Keep

The usual three-year retention rule doesn’t apply to retirement basis. You need documentation for as long as you hold the account, and for three years after the return reporting the final distribution that exhausts your basis. That’s often decades.

Hold onto every Form 8606 you’ve filed, annual IRA contribution records, Forms 5498 from custodians, plan statements showing after-tax employee contributions, annuity contracts and premium receipts, and prior tax returns that show whether IRA contributions were deducted. In an audit, the burden is on you to prove any part of a distribution was non-taxable. If you can’t, the IRS treats the whole thing as taxable income.

1
Internal Revenue Service. Form 1099-R – Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
2
Internal Revenue Service. About Form 8606, Nondeductible IRAs
3
Internal Revenue Service. 2025 Form 8606
4
Internal Revenue Service. IRS Form 8606 – 1991 Nondeductible IRA Contributions, IRA Basis, and Nontaxable IRA Distributions
5
Internal Revenue Service. About Publication 590-B Distributions from Individual Retirement Arrangements (IRAs)
6
Internal Revenue Service. 2025 Instructions for Form 8606 – Nondeductible IRAs
7
Internal Revenue Service. Publication 939 – General Rule for Pensions and Annuities
8
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
9
Internal Revenue Service. Instructions for Form 5329
10
Internal Revenue Service. Accuracy-Related Penalty