RMD Distributions - Taxable Portion Reported Incorrectly

[Yardley CPA]

New MFJ, highly compensated, client.  In 2017, he started receiving RMD's from an IRA which was funded by a direct rollover of his previous employers 401k.  Every year since 2017 the gross distribution, Box 1 and the taxable amount, Box 2a, of the 1099R  have been the same amount.  Client reaches out to Vanguard who the 401k was rolled into (direct rollover took place in 2005, funds were then rolled into a Schwab account in 2010) and received a letter showing the balance at the time of the rollover of $1million, the post-tax contributions amounted to $250k.  All of his distributions since 2017 have been shown to be fully taxable on the 1099R's.  This year, He received information from Schwab showing what the correct figures should have been on the 1099R's since 2017.  How to start showing distributions allocated between pre and post tax??  Am I using 8606 in this instance? He will also be reaching out to Schwab but are amendments needed for prior year returns?

[TexTaxToo]

Generally for IRAs, the custodian will put the full amount as taxable in Box 2a, but will check the "Taxable amount not determined" box in 2b.  That's because the custodian does not usually know if there is any basis (and is not required to track basis).  It is up to the taxpayer (or you) to keep track of the basis using Form 8606, which is required each year there is a distribution.

[Sara EA]

I wouldn't amend.  All that happened is that the taxpayer didn't recover any of his basis and still has it.  Enter that on Line 2 of the 8606.  The software will do the math as to how much of the current year distribution is taxable.

[jklcpa]

As for amending, I'd do the math and let the client decide.  With figures from 12 years ago showing basis of $250,000 and $1 million in FMV at that time, what is the FMV now?  We don't know the amounts of these distributions, the % of basis to be recovered, or what the tax brackets were in the open years, so we shouldn't say whether or not amending is worth it to the client.