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Should rolled over amounts be on a 1099-R?

Last Updated January 31, 2011

Question: 

I took a distribution of $10,000 from my traditional IRA last year.  At my request, the custodian withheld 10% ($1,000) for federal taxes. 60-days later, I rolled over $7,000. In January of this year, I received a 1099-R for the entire $10,000, showing the withholding of $1,000.

Is this reporting correct? I thought the 1099-R should show only $3,000, since I rolled over $7,000.

 

Answer provided by Appleby Retirement Consulting Inc. Appleby Retirement Consulting Inc provides Consulting, Coaching and Content on IRAs and other retirement plans to Financial, Tax and Legal professionals.

Answer: 

Yes. That reporting is correct. According to the IRS tax reporting requirements, the Form 1099-R must reflect the entire distribution amount, even if (all or a portion of) it is properly rolled over within the 60-day period. The question then becomes, “How do you let the IRS know that only $3,000 is taxable?” The answer lies in your IRS Form 1040 (tax return). Here’s what you need to do:

  • Input $10,000 on line 15a of your Form 1040. This must reflect the entire distribution amount, which in this case is $10,000
  • Input $3,000 on line 15b. This shows how much of the amount on line 15a is taxable
  • Enter ‘Rollover” next to line 15b
  • Since taxes were withheld from your distribution, attach a copy of your 1099-R to your tax return
(Note: different versions of Form 1040 require the data to be inputted on different lines. For instance, for Line 1040A, the line number is 11, not 15).
 
You should receive a copy of IRS Form 5498 from your custodian, showing the rollover contribution of $7,000 being made to your IRA. Keep it for your records, along with a copy of your tax return.
The IRS will also receive the information that is provided on your Form 5498, which will provide the confirmation they need that the $7,000 must be excluded from your income for last year.
 
5498 Notes:
  • If you completed the rollover last year, the Form 5498 should be mailed to you by May 31 of this year
  • If you completed the rollover this year (which is possible if the 60-day period ended in this year) the Form 5498 should be mailed to you by May 31 of next year
  • Check with your IRA custodian to ensure they treated the deposit as a rollover contribution, and if not, make sure corrections are made before the 5498 is issued.
 
Important: This response is assuming that the $7,000 was rollover eligible. If the IRA was already involved in an IRA to IRA rollover during the preceding 12-months, then the amount is not rollover-eligible. The 12-month period begins on the date of the distribution.