Thank you for this suggestion! I hadn't thought about requesting a contribution history statement. Did you have to specifically ask for the "contribution history statement" by that exact name, or was there another term for it? And how long did it take them to provide it?

I asked specifically for a "contribution history report showing the breakdown between pre-tax and after-tax contributions." Some plan administrators call it different things - contribution history statement, basis statement, or non-taxable investment summary. Be very clear that you need documentation showing your after-tax contribution basis. It took about a week for them to generate the report in my case. They initially tried to tell me they couldn't provide it, but when I mentioned I needed it for tax filing purposes to correctly report the rollover, they found a way to generate it. Be persistent - this documentation exists somewhere in their system, even if the frontline customer service reps don't immediately know how to access it.

This is a really good point about the earnings! How do you determine what portion was earnings if the 1099-R doesn't break it down correctly? Is it something you can calculate yourself from statements?

How do I tell from the 1099-R which system he was in? I'm looking at the form now but don't see anything that specifically says CSRS or FERS.

Look at Box 7 on the 1099-R, which shows the distribution code. For federal pensions, you'll typically see code "7" which means normal distribution. More importantly, examine the payer information at the top of the 1099-R. If it mentions "CSRS" specifically, that's your answer. If you still can't tell, another approach is to check if there's a Social Security benefit. FERS recipients typically receive Social Security benefits alongside their pension, while CSRS employees generally don't (unless they had other qualifying employment). So if your father received both an OPM pension AND Social Security, he was likely under FERS.

That publication is super helpful but also really confusing for beginners. I found the worksheets for calculating the taxable portion almost impossible to follow without help.

Thanks for the advice! Do you recommend any specific accounting software that's not too complicated for beginners? Also, can I just open a regular personal checking account for this or do I need a formal "business" account?

For beginners, I'd recommend something simple like Wave (it's free) or QuickBooks Self-Employed if you want something more robust but still user-friendly. Both let you track income and expenses, and can generate reports you'll need for taxes. For the bank account, a regular personal checking account works fine when you're starting out, but open one that's ONLY used for your business transactions. This makes tracking much easier and creates a clear separation that's helpful if you ever get audited. As you grow, you might want to upgrade to a proper business account for more features, but that's not necessary right away.

This is so confusing... how do you even figure out which states you need to pay tax to if you're selling online to people all over?

That's actually a really good point I hadn't considered. My freelance work is for a completely different company than my main employer - they're not related at all. They're in the same industry but totally separate businesses. Does that still raise red flags?

You should be fine if they're completely separate companies. The IRS is mainly looking for situations where someone is getting both W-2 and 1099 income from the same business entity or related entities (like subsidiaries or affiliates). Since your freelance work is for a different company in the same industry, that's a common and legitimate arrangement. Just make sure the work arrangements are clearly different - like the freelance company doesn't control when or how you do the work the way an employer would.

There's no minimum income requirement to qualify for the QBI deduction! Your $3,000 in freelance income would be eligible for the 20% deduction, giving you about $600 off your taxable income. It's not a huge amount but definitely worth claiming. The main requirements are that it's qualified business income (which freelance work on a 1099-NEC typically is) and that you're under the income thresholds (which at $3,000 you definitely are). Make sure you're reporting it on Schedule C even for that small amount.

Thanks for this suggestion! I've been digging through their paperwork and found they actually have very few statements from the last 5 years. I'm wondering if these notices went to an old address or something. Would the insurance company have records of what notices they sent and when? And if they didn't properly notify, what's the best way to approach them about it?

Insurance companies absolutely keep records of all notices sent, especially important ones like impending lapse notifications. Request a complete communication history from the company - they're required to maintain these records. If you find they didn't properly notify your parents according to state regulations, start with a formal written complaint to the company referencing the specific notification requirements they failed to meet. Include a clear request to reverse the lapse and reinstate the policy. If they don't respond appropriately, file a complaint with your state's insurance commissioner or department of insurance. These regulatory agencies take notification failures seriously, especially with older policyholders.

My father-in-law managed to get his partially reversed. The key was finding documentation showing the insurance company had been sending notices to an outdated address despite having his current contact info on file for other communications. He filed a complaint with the state insurance commissioner and eventually got about 60% of the taxable amount waived. The company reinstated his policy with reduced benefits rather than treating it as fully lapsed.