Come tax time, Form 1099-R may be one of the annual tax statements you get in the mail. You can expect a 1099-R if you received money from an individual retirement account, rolled over funds from another retirement account such as a 401(k) or 403 (b) plan, or converted a traditional IRA to a Roth IRA. Normally, you report distributions from retirement plans as taxable income once you retire and start receiving payments, although there are exceptions.
If you have received money from an individual retirement account at any point during the taxable year you should plan on receiving and filing Form 1099-R.
1099 Form for an IRA
Form 1099-R for an IRA shows distributions from retirement accounts such as IRAs, SEP IRAs, SIMPLE IRAs, annuities and pension plans. The form indicates the gross amount of the distributions you received, how much of that amount was taxed and the amount withheld for state and federal income taxes. The 1099-R also includes a distribution code explaining the kind of distribution you received. For example, you may have received an early distribution from an IRA account or rolled over a distribution to a qualified retirement plan, which both would be reported on Form 1099-R.
A pension plan administrator, brokerage house, mutual fund company or other financial institution is required to send you Form 1099-R reporting the amount of payments you receive or documenting your 401(k) to IRA transfer. By law, the plan custodian is responsible for providing you with a 1099-R and must mail the form to you by Jan. 31. In some cases, annual tax documents are forwarded electronically by email. If you take early distributions from a retirement account before you reach age 59-1/2, you will have to pay a 10 percent early withdrawal penalty on any amount you withdraw, in addition to paying ordinary taxes on the income.
The IRS requires that you attach Form 1099-R to your tax return if tax was withheld on all or part of any distributions you receive. Usually, federal income tax is withheld from pension and annuity payments and on the taxable portion of a profit-sharing plan, stock bonus plan or other deferred compensation plan. Taxes are not withheld on any money you receive that you do not have to include in your gross income. Money you receive from a Roth IRA usually won’t be taxable. That’s because unlike other retirement plans that allow you to take a deduction for the contributions you make each year, you can’t deduct your contributions to a Roth IRA.
Special Cases for Inherited IRAs
If you inherit an IRA from someone other than your spouse, you can withdraw the annual required minimum distributions based on your own life expectancy. This gives the money more time to grow for your retirement. The catch is you must take out your first distribution by Dec. 31 of the calendar year following the year that the person who left you the IRA died. Otherwise, you need to withdraw all the money within five years of the account owner’s death. In that case, unless someone left you tax-free income from a Roth IRA, income taxes can take a good chunk of your inheritance. When you take money from an inherited IRA, you receive Form 1099-R reporting the amount withdrawn from the account.
Tax Law for 2018
As of 2018, IRA tax rules aren't substantially different from previous years, but tax rates are generally lower and the standard deduction is higher. This may impact people's decisions about what types of retirement investments to contribute to or withdraw from in 2018 and subsequent years.
Tax Law for 2017
As of 2017, tax bracket marginal rates are generally higher than they will be in subsequent years. The standard deduction is also lower. IRA tax rules overall are essentially the same in 2017 and 2018 for most taxpayers.
Amber Keefer has more than 25 years of experience working in the fields of human services and health care administration. Writing professionally since 1997, she has written articles covering business and finance, health, fitness, parenting and senior living issues for both print and online publications. Keefer holds a B.A. from Bloomsburg University of Pennsylvania and an M.B.A. in health care management from Baker College.