Whether you make a withdrawal from your individual retirement account to use the money or to roll it over into another retirement account, the Internal Revenue Service requires the payer to report the distribution on Form 1099-R. As the account holder, you also receive a copy of the same form. Use it as a reference as you prepare your tax return. Even IRA rollovers, which are tax-exempt, must be reported to the IRS.
Form 1099-R Overview
Form 1099-R includes information about the IRA distribution and instructions to the recipient on how to use it. The brief guide explains what each box reports. Generally, IRA distributions appear in box 1. When the payer computes tax on the distribution, he adds it to box 2a. Otherwise, he checks the first box in 2b to indicate the taxpayer has to figure whether taxes are owed on the distribution. When the entire IRA fund is withdrawn, the institution that generated the 1099-R checks the second box in section 2b to show that the account is now closed.
Identifying the IRA Distribution
The institution that distributes the IRA funds uses check marks in certain boxes to clarify what information is being provided. If you receive a payment from a traditional IRA, SEP or SIMPLE plan, check box 7. The payer also uses letter codes to indicate Roth IRA distributions: An early withdrawal of Roth funds is categorized as J and a qualified distribution as Q, for example.
Because the payer also notifies the IRS of IRA distributions, it is important that you submit accurate information with your tax return. If the payer sends you a second 1099-R with an X marking the check box that reads “Corrected (if checked),” you need to provide the new information to the IRS. In that case, you may have to amend your return on Form 1040X if you have already filed it. A tax accountant is a valuable resource as you figure how to proceed in the situation.
You may be liable for income taxes on the distribution depending on the circumstances of the withdrawal. Payers who withhold money for federal taxes from your distribution use box 4 of Form 1099-R to report the amount. Likewise, box 12 shows the total withheld for state and local taxes. Institutions that retain money for taxes are responsible for paying the IRS as well as state and local revenue agencies directly on your behalf.
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