If you receive money from your IRA account, those distributions will be reported to the IRA by the account custodian, and you need to report the money as income on your tax return. In most cases, reporting distributions is pretty straightforward. However, if a portion of your IRA withdrawals qualifies as not taxable, you get to complete some extra paperwork for your tax return.
IRA Distributions 1099
If you take withdrawals or distributions from your IRA, the custodian of the account will send you a Form 1099-R at the end of the year. The information on the 1099-R also goes to the IRS. The amount of the distribution reported on the 1099 should be also listed on your income tax return. If you rolled over the distribution, or if a portion was not taxable, there are extra lines on the return to break out what portion of the distribution was taxable.
Income Tax Return
There is a separate line on the income tax return -- Form 1040 or 1040A -- for IRA distributions. There are separate parts (a) and (b) for the line, such as 15a and 15b on the Form 1040 and 11a and 11b on the 1040A. If the full amount listed on the 1099-R will be declared as taxable income, leave the (a) block on the line blank, and copy the amount of the IRA distribution listed in box 1 of the 1099-R in the IRA distributions (b) box.
If a portion of the IRA distribution listed in box 1 of the 1099-R is not taxable income, you put the amount from the 1099 in the IRA distributions (a) box on the tax return and the amount that is taxable in the (b) box. If you deposited the IRA money into another IRA as a qualified rollover, put a zero in the (b) box and write the word "rollover" next to the box. Do the same for a fully non-taxable Roth IRA withdrawal. If a portion of your IRA distribution is non-taxable for other reasons, you need to complete a Form 8606 to attach to your tax return.
Form 8606 Requirements
Form 8606 becomes necessary if you at some point in time made non-deductible contributions to your IRA, or if you recently converted a traditional IRA to a Roth IRA and the distributions came out of that account. You will know you need to complete a Form 8606 if the (b) box value is less than the (a) box value, but greater than zero, or if the 1099-R has a Q or a T in box 7. If one of these criteria applies, complete a Form 8606 and include it with your return.
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