by Denise Appleby CISP, CRC, CRPS, CRSP, APA
If you moved assets from a retirement account during the previous year, you should receive a Form 1099-R for the transaction, unless the movement was attributed to transactions such as the following:
- A trustee-to-trustee transfer between two accounts of similar type. For example between two traditional IRAs, between a traditional IRA and a SEP IRA, from a SIMPLE IRA to a traditional IRA or a SEP IRA, from a SIMPLE IRA to another SIMPLE IRA or between two Roth IRAs.
- A movement of assets between accounts under the same qualified plan, 403(b) or governmental 457(b) plan.
- Fees paid from the account, such as administrative or management fees.
- Where the aggregate distributions from the account for the year is less than $10.
- Where the amount represents a distribution to a nonresident alien, and taxes are withheld from the distribution. In this case, Form 1042-S is used to report the transaction instead. And
- The amount represents early withdrawal penalties on a Certificate of Deposits (CDs). 
1099-Rs are required to be issued by January 31 of the current year, for reportable transactions that occurred during the previous year. If January 31 falls on a weekend or legal holiday, the deadline is extended to the next business day.
What Your 1099-R Means
The information provided in the numbered Boxes on your 1099-R provides important information which is intended to help you to determine the tax-treatment of your distribution. The significance of the information provided in these boxes is explained in the instructions provided by the IRS. The following are some tips that can help you through the tax season.
Your ‘Taxable Amount’ May not Be (Fully) Taxable-Focus on Box 2a
Generally, the issuer of your 1099-R (your plan administrator, trustee or custodian) is required to reflect the taxable amount of your distribution in Box 2a. From the issuer’s perspective, the following are some nontaxable transactions, which would be reported in Box 1, but not in Box 2a:
- Direct rollovers between qualified plans, 403(b) plans, 457(b) plans, traditional IRAs, SEP IRAs and SIMPLE IRAs. SIMPLE IRAs can only be on the delivering end, as other retirement accounts cannot be rolled over or transferred to a SIMPLE IRA or a SEP IRA.
- The principal on a return of excess contribution from an IRA that is removed by the deadline. The excess amount and earnings are reported in Box 1, but only the earnings are reported in Box 2a. If there is a loss on the excess, Zero is entered into Box 2a.
- Recharacterized IRA contributions or Roth conversions.
- Distributions of after-tax amounts from qualified plans.
If an amount is reported in Box 2a, but you know the amount is nontaxable, you will need to apply the nontaxable treatment on your tax return. Examples of when this can occur include:
- You receive a rollover eligible distribution, and you rolled over the amount within 60-days. In such a case, you will need to report the amount on Lines 15a and 15b if the distribution was made from an IRA or Lines 16a and 16b if the distribution was made from a qualified plan, 403(b) or 457(b) plan. For instance: Assume you receive a distribution of $10,000 from your traditional IRA last year, but you rolled over the amount within 60-days. Your IRA Custodian is required to report the amount as taxable. However, when you file your tax-return, you should take the following steps:
–Enter $10,000 on line 15a
–Enter ‘rollover’ next to line 15b
–Enter -0- on line 15b
If the amount was rolled over to another IRA, you and the IRS will receive 5498 reporting for the rollover from the IRA custodian, which will offset the 1099-R. However, you should attach a letter of explanation and proof of the rollover if possible, if the following apply:
–The rollover was made to a qualified plan, 403(b) or 457(b) plan, as Form 5498s are not issued for these plans
–The rollover was made in the following year, because the 5498 will not be issued until next year. This could occur if the distribution was taken during November or December of last year and the rollover was made in January or February of this year, but within 60-days.
- You receive a distribution which included nontaxable amounts. Nontaxble amounts are attributed to after-tax contributions made to your qualified plan or 403(b), or nondeductible contributions made to your traditional IRA.
If the distribution was made from a qualified plan or 403(b) plan, it is likely that the 1099-R correctly shows the amount that is nontaxable.
For IRAs, the custodian is not required to keep track on nontaxable balances, and as such, they usually report all IRA distributions as taxable. In order to ensure that you do not pay taxes on amounts that should be tax-free, you will need to file IRS Form 8606 along with your tax return.
Form 8606 includes a built in formula that helps you to determine the taxable portion of your distribution. If you did not file Form 8606 when these amounts were credited to your IRA and they were credited before last year, talk to your tax professional about filing these missing forms. Filing all the forms will help the IRS to understand how you arrived at the current figure.
- You converted an amount that was later recharacterized. If a contribution or conversion for last year is recharacterized this year, the 1099-R for the recharacterization will not be issued until January of next year. In addition, the tax reporting for the recharacterization will likely not correspond to the tax reporting for the conversion.For instance, assume you converted $100,000 last year and due to market losses, the account was valued $60,000 when it was recharacterized. You will receive a $1099-R and a 5498 that reports $100,000 for the conversion. You will also receive a 1099-R and a 5498 showing $60,000 for the recharacterization. Yet, you would treat the entire $100,000 as nontaxable, because for tax purposes, the entire amount was recharacterized. The IRS understands that these figures will be different due to market fluctuations; as such, there should be no negative response from the IRS regarding the difference in value.
If the conversion was done last year, and the recharacterization was done this year, the 1099-R for $100,000 would be mailed to you by January 31 of this year, and the 5498 by May 31 of this year. The 1099-R and 5498 for the recharacterization is issued for the year the recharacterization is processed, which would be next year.
When filing your tax return, attach an explanation of the recharacterization, so that the IRS understands why the conversion is not taxable. If you recharacterize less than 100% of the conversion, you will need to File IRS Form 8606.
What to do With Your 1099-R
Your 1099-R need not be filed with your tax return, unless it shows that you had taxes withheld. A copy should be retained along with a copy of your tax-return. It may also be a good idea to keep a copy of your account statement that includes the transaction for which the 1099-R was generated, just in case the need for a review of the transaction arises for any reason, at a later date.
It is risky to assume that your 1099-R is accurate. Double check all the boxes and check with the issuer if you have questions about the information included. Be sure to inform your tax preparer of any circumstances that would result in an amount that is reported as taxable being free from income tax. Failure to provide your tax preparer and the IRS with required information could result in your paying taxes on amounts that should be tax-free.
 The SIMPLE IRA must have met the two year requirement
 Not to be confused with early distribution penalties