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Don’t Run Rings Around IRS Form 1099-R: A Simple Guide

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    When you were employed, you were used to receiving a W-2 from your employer as tax time approached. If you’re retired, then you still need a way to report any income you’ve earned over the past year to the IRS.

    This is where IRS Form 1099-R comes in. Just like a W-2, 1099-R forms are released annually at the end of each year that you collect retirement income.  

    Not sure how to reference this form or what it includes? Today, we’re answering the question “What Is a 1099-R?” to clear up any confusion and help set the record straight. 

    What Is a 1099-R Form?

    Your designated State Retirement System will issue a 1099-R if you’ve received any of the type of income from one of these programs throughout the tax year in question:

    • Profit-sharing plans
    • Retirement plans
    • Individual retirement arrangements (IRAs)
    • Annuities and pensions (including charitable gift annuities)
    • Insurance contracts
    • Survivor income benefit plans
    • Permanent and total disability plans (under life insurance contracts)

    To qualify for inclusion, you must have received an amount equal to or greater than $10 from any of the above distribution categories. 

    Who Receives One?

    The IRS Form 1099-R is most closely associated with retirees who regularly make withdrawals from their retirement accounts (e.g. IRAs or 401(k)s) to fund their lifestyles in retirement. 

    However, anyone who meets the conditions above may receive this tax document. In addition, you can receive a 1099-R even if you’re still actively working. If you haven’t retired yet, here are some factors that could necessitate this form:

    • You receive a payout on a life insurance policy that’s reached maturation
    • You take an early distribution from a traditional IRA account
    • You take a loan from a 401(k) account but do not repay it
    • You roll over a 401(k) account to an IRA account
    • You close a traditional or Roth IRA

    What Do I Do With It?

    You will need to report all of the information on all of your 1099-R forms as income on your federal tax return. If you received more than one 1099-R, then gather them all together and keep them in the same place.

    Find the amount located on Box 1 of each form. Add all of these amounts together and enter the information on the designated box on IRS Form 1040: U.S. Individual Income Tax Return. 

    When Will I Receive It?

    If you are eligible to receive a 1099-R form, then you should receive it by the end of January. Like most IRS 1099 forms, plan issuers must send 1099-R forms to recipients by January 31 of the year that follows the preceding tax year. 

    If you have not received this form by the end of the month, then reach out to your State Retirement System for more information. Most of these systems are divisions of your state’s Department of State Treasurer, and you can find their contact information easily online. In addition to providing each taxpayer with the form, your plan issuer must also give a copy of your 1099-R to the following parties:

    • The IRS
    • Your state, city, or local tax department 

    You should be able to view your 1099-R directly on your State Retirement System account. From there, you can also print or download it. 

    Understanding the Different Types

    When you log into your online account, you may be surprised to find that you actually have more than one IRS Form 1099-R. That’s entirely normal, and to be expected.

    You’ll receive a separate 1099-R for each type of retirement income you earn. For instance, you may receive one associated with earnings from your pension account, and another that lists your IRA earnings. 

    There are other factors that could also qualify you to receive multiple 1099-R forms. If you meet any of the following conditions, then keep an eye out for different documents:

    • You’re retired from multiple retirement systems
    • You turned age 59.5 during the tax year
    • You’re receiving your own retirement benefit and a refund of contributions in the same tax year
    • You’re receiving your own retirement benefit and a payment after a divorce
    • You’re receiving your own retirement benefit and a survivor benefit from another party

    Again, a representative from your State Retirement System can help you navigate the different forms you see. In addition, you can also reach out to our team of qualified tax attorneys if you have any questions or think there may be an error on your account. 

    IRS Form 1099-R: A Box-by-Box Breakdown

    Now that we’ve answered the basic question of “What is a 1099 R form?”, let’s take a closer look at what you can expect to see when you open the document.

    In addition to the boxes identified below, all 1099-R forms will include identification information for both you and the payer. For the payer, this includes their:

    • Name
    • Address
    • Telephone number
    • Taxpayer Identification Number (TIN)

    For you (the recipient), that information includes your:

    Here’s a breakdown of the top-level boxes you’ll see on the form. 

    Box 1: Gross Distribution

    Box 1 is titled “Gross Distribution.” Here, you’ll find the total amount that each retirement plan or program paid to you during the tax year. You may have received this amount in a number of different ways, including:

    • A direct rollover
    • A transfer or conversion to a Roth IRA
    • A recharacterized Roth RIA contribution

    In addition, you may have received this amount as periodic or non periodic payments. It could have also been applied as a total distribution. 

    Box 2a: Taxable Amount

    Box 2a constitutes the portion of your gross distribution amount that’s considered taxable income. This amount will always be equal to or less than the amount listed in Box 1. 

    If the box is empty, then find Box 2b below it.

    Box 2b: Taxable Amount Not Determined

    Is Box 2b checked on your IRS 1099R? If so, then this means that there was not enough information provided to calculate your taxable amount. It’s your responsibility to determine the taxable amount, and there are free publications from the IRS available to help you do so. 

    You can also reach out to our team of experienced tax attorneys for help with this matter, as well as any other tax-related question you might have. 

    Box 2b: Total Distribution

    There’s a second box in Box 2b: Total Distribution. If you see a checkmark here, then it means that the distribution you received over the tax year effectively closed your account. 

    Box 3: Capital Gain

    Capital gain numbers for Box 3 are captured in Box 2a: Taxable Amount. If you received a lump-sum distribution from a qualified plan and meet the birth date requirements, then you may be able to treat this amount as a capital gain on IRS Form 4972. 

    To meet the birth date requirement, you must have been born before January 2, 1936 or be the beneficiary of someone who was born before that date. 

    Box 4: Federal Income Tax Withheld

    In Box 4, you’ll find the total amount of federal income tax during the tax year. Note that this applies to that specific retirement account only. You will need to report this amount on your federal income tax return as tax withheld. 

    This number will include any amount withheld from your cost-of-living adjustment (COLA) benefits. 

    Box 5: Employee Contributions

    Box 5 lists any after-tax contributions returned back to you as part of your pension benefits. An after-tax contribution is money that you pay into a retirement or investment account after income taxes have already been deducted on those earnings. 

    Note that if you’re a member of your state’s Public Employees’ Retirement System (PERS), then Box 5 will not relate to your Roth contributions or insurance premiums. Rather, the amount printed will represent the difference between Box 1 and Box 2a. It signifies your after-tax contributions recovered tax-free during the applicable calendar year. 

    While Roth contributions are limited, after-tax contributions are not. 

    Contributions made to Illinois Municipal Retirement Fund (IMRF) are one example. Before 1984, any money you used to pay your IMRF contributions was added to your taxable income. Thus, if you made an IMRF member contribution prior to 1984, the money used was already subject to federal income tax. 

    Other examples of after-tax contributions include:

    • The portion designated as your basis in a Roth IRA account
    • The tax-free portion of premiums paid on commercial annuities or insurance contracts
    • The non-taxable portion of a charitable gift annuity
    • The investment in a life insurance contract reportable under Internal Revenue Code Section 6050Y

    Box 6: Net Unrealized Appreciation in Employer’s Securities

    Net Unrealized Appreciation (NUA) represents the difference that exists between the original cost basis of employer stock shares and their current market value. Are you a taxpayers who received a lump-sum distribution from a qualified retirement plan that includes securities of your employer’s company?

    If so, then the IRS will only tax the NUA if you sell those securities. Alternatively, you can choose to include the distribution in your gross income for this tax year. 

    Box 7: Distribution Codes

    In Box 7, you could see a variety of different distribution codes. The IRS uses these codes to identify the type of benefit that you received in that tax year. For example, there are different codes for retirement benefits, disability benefits, beneficiary benefits, and more. 

    Let’s take a look at some of the different ones you might find.

    Distribution Code 1

    Distribution Code 1 means that you’re under the age of 55 performed at least one of the following actions:

    • Withdrew retirement contributions
    • Withdrew an annuity at retirement but didn’t roll it into an IRA, qualified plan, or tax-sheltered annuity

    Distribution Code 2

    Distribution Code 2 can mean one of two things. The first is that you’re a retiree over the age of 55 but under 59.5 and you withdrew your retirement contributions during the tax year. Or, it can also apply to service retirees who are younger than 59.5.

    Distribution Code 3

    Distribution Code 3 is more straightforward. This code designates to the IRS that you are receiving a disability retirement. 

    Distribution Code 4

    Distribution Code 4 notes that you are receiving payment(s) from a deceased member or retiree’s account. You can receive these payments as a designated beneficiary, survivor, or estate. 

    Distribution Code 5

    The IRS will use Distribution Code 5 to note any instance where an IRS-prohibited transaction occurred. If this box is populated, then it tells the IRS that the account in question is no longer considered an IRA. 

    The IRS details the most common events that constitute a prohibited transaction here

    Distribution Code 6

    Distribution Code 6 represents a Section 1035 exchange. This is a tax-free exchange of any of the following:

    • Life insurance
    • Annuity
    • Qualified long-term care insurance
    • Endowment contracts

    Distribution Code 7

    Are you over the age of 59.5 and receiving a service retirement? If so, then you will see Distribution Code 7 on your IRS Form 1099-R.

    Distribution Code G

    Did you directly roll your retirement payment into an IRA during the tax year? If so, then you will see Distribution Code G on your IRS Form 1099-R. 

    Box 8: Other

    Box 8 will usually be blank on your 1099-R. This is located beside Box 7 and directly under Box 6. 

    Box 9b: Total Employee Contributions

    Box 9b is used to show the total amount of after-tax contributions you paid into your retirement account while you worked. Your State Retirement System will use this number to determine your after-tax contributions identified in Box 5. Note that you will only see this amount in Box 9b in your first year of retirement. 

    What If I Received Form 1099-R in Error?

    Do you think that you received IRS Form 1099-R in error? If so, then your first step is to immediately contact your retirement plan custodian. This expert should be able to correct the situation quickly so you can avoid filing an incorrect or incomplete tax return.

    If you need additional support, you can reach out to our tax experts for advice on your next steps. 

    Do You Need Help With IRS Form 1099-R?

    Tax time is upon us, and it’s important to know which forms to complete, save, and organize. If you’ve been wondering, “What is a 1099-R form?”, then this guide should help you answer those questions. 

    If you need additional help, feel free to reach out to us. You can contact Silver Tax Group today to discuss your tax-related questions and learn more about the services we provide. 

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