By Beverly DeVeny, IRA Technical Expert
Follow Me on Twitter: @BevIRAEdSlott
If you took a withdrawal from any IRA or employer plan last year, you will get a copy of IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. very soon. The IRA custodian or employer plan was required to send you a copy of Form 1099-R by January 31, 2013 for any 2012 retirement plan distributions you took.
Form 1099-R is used to complete your 2012 federal income tax return, so don’t forget to give your copy to your tax preparer. For any 2012 IRA distributions, you’ll get a copy of Form 1099-R if you were the IRA owner or a beneficiary of a deceased IRA owner. The form also includes “Instructions for Recipient” to help you understand the information that’s being reported to the IRS.
The form will show the gross amount of the retirement plan distribution and also the taxable amount in boxes 1 and 2 respectively. However, just because box 2 shows the taxable part of your distribution, this does not necessarily mean you owe tax on those funds. For example, if you took a $10,000 distribution from your own IRA last year but properly rolled it over to another IRA, there are no taxes due because rollovers are tax free. The IRA custodian is required to report the $10,000 as taxable, but your tax preparer should simply claim it as nontaxable when he or she completes your tax return. Note: Make sure to tell your tax preparer that you rolled over your IRA distribution.
Form 1099-R will show the reason you took a distribution by entering a reason code on the form. The form will also show if any federal income taxes were withheld on your retirement plan distribution. If federal income taxes were withheld, then you must actually attach a copy of Form 1099-R to your federal income tax return if you are mailing it in instead of e-filing.
If you were under the age of 59 ½ when you took a distribution, the 1099-R will most likely indicate that your distribution is subject to the 10% early distribution penalty. There are several exceptions to the penalty. If you qualify for one of the exceptions, you must file Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts, with your return and give IRS the code for the exception you are claiming. Be sure to consult with your tax preparer to see if you qualify for an exception and to make sure that the form is properly filed.
You also may have done a direct rollover from an employer plan to a Roth IRA. In this case, the 1099-R from the plan will indicate that no tax is due on the distribution. However, income tax is always due on a conversion of pre-tax amounts to a Roth IRA. The Roth IRA custodian will report your conversion to IRS on Form 5498, IRA Contribution Information, which must be issued by May 31, 2013 for 2012 transactions. Be sure you tell your tax preparer about any Roth conversions, recharacterizations, or reconversions that you did during the year.
• IRS Form 1099-R for 2012 was or should have been sent to you by January 31, 2013 for retirement plan distributions you took last year.
• Give a copy of Form 1099-R to your tax preparer and let him or her know if you did a rollover of some or all of your distribution.
• Consult with your tax preparer about any early distributions taken during the year.
• Inform your tax preparer of an Roth conversions, recharacterizations, or reconversions done during the year.