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IRS Form 1099-R is related to tax filing. It is used to show any distributions from pensions, IRAs, profit-sharing plans, and annuities. It needs to be used anytime you receive over $10 from these accounts in a tax year. The report will include the financial information so you can include it on your state and federal tax returns.
This tax form should be sent by a bank or financial institution. The 1099-R form should list the gross income from these accounts for the year, and how much of that income is taxable. It will also list any state or federal tax deductions that have been made over the year. If the amount of taxable income is not included, it will need to be calculated manually by the person filing the taxes.
The most common types of distributions that will cause a 1099-R form to be issued are:
A Form 1099-R include: gross distribution paid during the given tax year, the amount of the distribution that is taxable, the federal income tax that has been withheld, the contributions made to the investment or premiums paid, and a code that indicates the type of distribution that was made.
1 Early distribution, usually under age 59.5
2 Early distribution, exception applies (under age 59.5)
5 Prohibited Transaction – usually means the account is no longer an IRA.
6 Section 1035 exchange (a tax-free exchange of life insurance, annuity, qualified long-term care insurance, or endowment contracts)
7 Normal distribution
8 Excess contributions plus earnings/excess deferrals
9 Cost of current life insurance protection
A May be eligible for 10-year tax option
B Roth account distribution
D Annuity payments from nonqualified annuities, may be subject to taxation under § 1411
E Distributions from Employee Plan Compliance Resolution System (EPCRS)
F Charitable gift annuity
G Direct rollover of a distribution to a qualified plan, a section 403(b) plan, a governmental section 457(b) plan, or an IRA
H Direct rollover of a Roth account distribution to a Roth IRA
J Early distribution from a Roth IRA
L Loans treated as distributions
N Recharacterized IRA contribution made for current year and recharacterized in current year
P Excess contributions plus earnings/excess deferrals (and/or earnings) taxable in past year
Q Qualified Roth IRA distribution, met 5 year holding period, reached age 59.5, died, disabled
R Recharacterized IRA contribution made for past year and recharacterized in current year.
S Early distribution from a SIMPLE IRA in first 2 years
T Roth IRA distribution, exception applies
U Dividend distribution from ESOP under sec. 404(k)
W Earmarked for purchasing qualified long-term care insurance contracts under combined arrangements.
Most benefits that are paid before someone turns 59.5 are considered to be early distributions. There is an additional 10 percent federal tax on early distributions that is intended to discourage the misuse of retirement funds. Some states also impose an additional state penalty on early distributions.
Common exceptions include: death, disability, an IRS levy, and medical expenses that exceed 7.5 percent of the taxpayer’s adjusted gross income.
Common types of distributions include:
Retirement benefits are essentially a deferred compensation arrangement. Taxes on this income are also deferred until the funds are withdrawn by the employee. If no after-tax contributions were made to the pension plan before distribution, the entire amount is included in taxable income. In cases where the after-tax contributions were made to an annuity or pension, only a portion of the distribution will be taxed.
A rollover means that retirement funds are moved from one custodian to another without paying money on the transferred money. Direct rollovers are identified by codes G or H. Indirect rollovers happen when the account owner takes possession of the retirement funds and redeposits them into another qualified retirement account. Typically, this must happen within 60 days.
Some companies allow employees to take loans against their pension plans. These loans are typically repaid with interest, so are no considered distributions. If the loan is not repaid on time, it is considered a distribution and a Form 1099 R is issued. These distributions may be subject to early distribution penalties.
To complete a 1099 R, you need to provide:
When should I expect a 1099 R form?
Custodians are required to send a 1099 R to the owner of a plan if they have made distributions of $10 or more from the plan during the year. The form must be mailed to the recipients by January 31 of the year following the distribution.