Form 1099-R Instructions & Information

If you’re one of over 44 million retired Americans, there’s a good chance you’ve come across tax form 1099-R. In addition to completing your standard IRS Form 1040, you’re required to complete form 1099-R if you’ve received any distributions from profit-sharing or retirement plans, IRAs, annuities, pensions, and more. If you’re staring down a 1099-R and are unsure how to complete it, read on for a crash course.

What is a 1099-R?

IRS Form 1099-R is used to declare a distribution (the receiving of) an amount over $10 from any of the following sources:

• Profit-sharing or retirement plans
• Individual retirement arrangements (IRAs)
• Annuities, pensions, insurance contracts, survivor income benefit plans
• Permanent and total disability payments under life insurance contracts
• Charitable gift annuities

Most who receive public or private pension benefits are required to file this form (note that this doesn’t apply for benefits received via the Civil Service system). The form also is required if you made excess contributions to your 401(k), or rolled your funds into another account. You should receive the form from the custodian of the distribution.

How Will Funds Reported On My 1099-R Be Taxed?

The taxation of funds reported on your 1099-R depends upon the type of distribution you’ve received: “General distributions from traditional 401(k) plans, including normal distributions, hardship withdrawals, and excess deferral returns are taxable. However, distributions from Roth accounts generally are not.”

In the case that your 1099-R reports funds that have moved from one account to another, the process is known as a rollover and falls into one of two categories. If your fund is a direct rollover, or a direct transfer, from one account to another, it will not be taxed. If your distribution is an indirect rollover, it’s a bit more complicated.

An indirect rollover is a situation in which you’ve received a check made out to you from one account and have then deposited that check into another account. Indirect rollovers must occur within a 60-day period, or individuals are subject to taxation on the rollover amount as if it were income or penalties for early distribution of retirement funds.

Indirect rollover funds are subject to a 20% federal income tax withholding. Therefore, you must use other funds to make up for that 20% deficit to ensure that the withdrawn amount is equal to the deposited amount. If this is the case, the distribution is not taxed.

Remember that all rollover funds must be reported on your 1099-R—whether they are taxed or not.

What Information is Shown on Tax Form 1099-R?

As with all tax forms, it’s imperative that all information on IRS Form 1099-R is accurate. Let’s walk through each item one by one and review what information they report:

PAYER’S name and federal identification number: This is where you’ll find the name and federal identification number of the custodian of your distribution

• Box 1: This box will be pre-filled with the gross (total) distribution amount you’ve received
• Box 2a: This will show your total taxable amount based on your distribution. A “0” indicates that your distribution was: a qualifying direct rollover (from a qualified plan to another or to a traditional IRA, or a direct rollover from a Roth account to a Roth IRA). If this box is blank, your payer was unable to determine the taxable amount.
• Box 2b: If your payer was unable to determine the taxable amount, there should be an “X” next to “Taxable Amount Not Determined”. You’ll find an “X” next to “Total Distribution” if the entire balance of your account has been distributed within 1 tax year.
• Box 3: This is where you’ll see any taxable capital gain, such as charitable gift annuities or a lump-sum distribution from a qualified plan if you were born before January 2, 1936.
• Box 4: Shows the amount of federal income tax withheld, if any.
• Box 5: Shows the amount contributed to Roth or insurance premiums.
• Box 6: Indicates that you’ve received a distribution in the form of stocks from your pension plan, as well as the appreciation in value since you received the stocks.
• Box 7: Here you’ll find a code known as the “distribution code” that identifies the type of distribution received. Here’s a breakdown of all 1099-R codes:
  • Early distribution, no known exception: This is for early distributions from your account. If this amount was not a rollover, a 10% additional tax will be applied.
  • Early distribution, exception applies: Just like above, but this indicates that you are under 59 ½ and an exception to the additional tax applies.
  • Disability: This code will appear if you’ve received a disability pension.
  • Death: Code for a survivor’s benefit or inherited IRA.
  • Prohibited transaction: There was a prohibited transaction involving the IRA account.
  • Tax-free section 1035 exchange: Indicates the tax-free exchange of life insurance, annuity, long-term care insurance, or endowment contracts.
  • Normal Distribution: Will appear in several scenarios in which a distribution is considered standard.
  • Excess contributions: Includes corrective distributions of excess deferrals, excess contributions, and excess aggregate contributions.
  • Cost of current life insurance: Shows premiums paid by a trustee or custodian for current life insurance.

Code A: May be eligible for 10-year tax option: Indicates that you were born before January 2, 1936 (or you are a beneficiary of someone who was) and may be eligible for a 10-year tax option method instead of paying tax on lump-sum distributions.

Code B: Designated Roth account distributions: Indicates a distribution from a designated Roth account.

Code D: Annuity payments from non-qualified annuities: This will be checked if your distribution is from a private annuity in conjunction with the regular code.

Code E: Distributions under Employee Plans Compliance Resolution System

Code F: Charitable gift annuity

Code G: Direct rollover and direct payment: Indicates that there was a direct rollover from a qualified plan to an eligible retirement plan, and whether that rollover is taxed.

Code H: Direct rollover of a designated Roth account distribution to a Roth IRA

Code J: Early distribution from a Roth IRA

Code K: Distribution of IRA assets not having readily available FMV

Code L: Loans treated as deemed distribution

Code N: Recharacterized IRA contribution made for 2017: For a recharacterization of an IRA contribution made for 2017 and recharacterized to another type of IRA that same year.

Code P: Excess contributions plus earnings/excess deferrals

Code Q: Qualified distribution from a Roth IRA: This code indicates that you’ve met the 5-year holding period and one of the following:

1. You have reached age 59 ½
2. The IRA participant has died
3. You are disabled

Code R: Recharacterized IRA contribution made for 2016: Indicates that you recharacterized an 2016 IRA contribution made in 2017 to another type of IRA

Code S: Early distribution from a SIMPLE IRA, no known exception: This requires a 25% additional tax unless you qualify for an exception

Code T: Roth IRA distribution, exception applies:  This code will appear if your distributor does not know if the 5-year holding period has been met, but they do know one of the following:

1. You have reached age 59 ½
2. The IRA participant has died
3. You are disabled

Code U: Dividends distributed from an ESOP under section 401(k): indicates a distribution of dividends from an employee stock ownership plan under section 401(k).

Code W: Charges or payments for purchasing qualified long-term care insurance contracts under combined arrangements

• Box 8: Here, you’ll see the amount of any annuity contract that was part of your yearly distribution, if any.
• Box 9a: If you received part of a distribution that was sent to more than one person, you’ll see the percentage of the total distribution that you received here.
• Box 9b: This will show your total investment in a life annuity. It’s used to calculate how much tax will be charged on that investment amount.
• Box 11: Record of the first year in which you made a contribution to your Roth account.
• Boxes 12-17: Here you’ll find any amounts withheld by your state as well as reported to your state.

When a taxpayer is preparing an individual tax return (1040) the taxable distribution amount should be recorded in the income section of the return on line 15a or 16a. Taxpayers need to know that there can be a significant difference between the gross distribution and the taxable distribution that can be reported on Form 1099-R. If a taxpayer is rolling a retirement income into another qualified retirement account, the gross distribution could be significantly greater than that of the taxable amount. In the event that this type of distribution occurs, clients should also expect to receive a Form 5498 showing the rollover in addition to their Form 1099-R.

As a tax practitioner, a very common problem that we encounter with clients is under-withholding of taxes on the Form 1099-R distribution; particularly with clients who elect to make a distribution on a pension or retirement account prior to the age of 59 ½. When this occurs, additional penalties are assessed and many of my clients do not prepare for that by withholding enough tax at the time of the distribution. This can obviously cause a lot of financial strain when it comes time to file a tax return because it has the potential to generate a substantial tax liability. From a tax planning standpoint the best thing a taxpayer can do is withhold a minimum of 20% to 30% in tax at the time a Form 1099-R distribution occurs. When it comes time to file the tax return it should help to minimize an unmanageable tax liability at the time that the return is filed.

Though your tax form 1099-R will come pre-filled by your payer, it’s imperative that you review all information to verify that it’s reported correctly. Any misinformation submitted to the IRS could result in litigation and/or fines as a result of tax fraud. If you believe you may have given incorrect information to the IRS, contact a tax professional for tax relief help today.