Post on 08-Apr-2018
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IRA'S
An IRA is an INDIVIDUAL RETIREM
provides income tax advantages t
A. There are six different types of IRAs:
1TRADITIONAL IRA
A Traditional IRA is a retirement s
retirement by contributing a certa
on a tax-deferred basis. This mea
resulting in a compounding effect
when the owner retires, when the
IRA assets.
If the Traditional IRA is not alread
generally April 15 of the year follo
not apply to IRAs. An important be
deductible and earnings have the
income may contribute up to $4,0
make catch-up contributions.
2EDUCATION IRAYou can put away up to $500 per
preferential tax treatment upon di
expenses. These plans are not ver
the amount they allow you to cont
that would qualify. Your IRA financ
savings plan you should invest in.
3
A SEP (Simplified Employee Pensi
reporting requirements simpler th
a good fit for sole proprietors and
these plans for their own benefit a
plans due to the fact that they ha
which are tax deductible to emplo
is withdrawn from the IRA. This is
SEP IRA - Simplified Employee Pension
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for SEPs. Currently, contributions
whichever is less. SEP participants
an IRA. The employer has until its
SEP contributions. In order for a b
Application and an IRS Form 5305
4SIMPLE IRA
The Savings Incentive Match Plan
sponsored retirement plan. The SI
proprietorships, partnerships, and
limitation. Certain administrative r
IRA plan to stay in compliance wit
plan, but it is quickly becoming ve
5ROTH IRA
A Roth IRA is a retirement plan wh
certain amount each year. Interet
basis, but also are tax-free if distri
interest earnings accrue on intere
larger account balances.
Who is eligible for a self directed
Anyone who has earned income athe Traditional IRA, the Roth IRA h
contribute as long as they like. In
Income Limits for the Roth IRA: Yo
and your modified adjusted gross
married and file a joint return, and
separate return). The amount you
adjusted gross income is between
are married and file a joint return,
spouse and file a separate return)
6Spousal IRA
Spousal IRAs are designed to help
traditional or Roth IRA. Couples ca
year ($10,000 if they are both ove
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earned income.)
FORM 1099R
distributions made to the holder o
Box Explanations
1Gross distribution Shows the total amount you recei
amount may have been a direct r
to a Roth IRA, a recharacterized I
have received it as periodic paym
or as a total distribution.
2aTaxable amount This part of the distribution is gen
is no entry in this box, the payer
needed to figure the taxable amo
box 2b should be checked.
2bTaxable amount If the first box is checked, the pay
not determined determine the taxable amount, an
3Capital gain (included If you received a lump-sum distrib
in box 2a) plan and were born before Januar
beneficiary of someone born befo
be able to elect to treat this amou
4972 (not on Schedule D (Form 10
An Internal Revenue Service (IRS)
from annuities, profit-sharing planfollowing are some of the items in
year, the amount of the distributio
contributions made to the invest
The plan custodian sends the for
more from the plan in a given yea
distribution was made. In some ca
her tax return. The plan owner, th
receive a copy of the form.
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4Federal income tax Shows federal income tax withhel
withheld on your income tax return as tax
an amount (other than zero), atta
5Employee contributions Generally, this shows the employe/Designated Roth contract (after-tax contributions),
contributions or year; the portion that is your basis
insurance premiums the part of premiums paid on com
contracts recovered tax free; or th
charitable gift annuity.
6Net unrealized If you received a lump-sum distrib
appreciation in plan that includes securities of th
employers securities unrealized appreciation (NUA) (an
securities while in the trust) is tax
securities unless you choose to in
this year.
7Distribution The following codes identify the di
code(s) For more information on these dis
1Early distribution, no known exage 59 ).
2Early distribution, exception ap
3Disability.
4Death.
5Prohibited transaction.
6Section 1035 exchange (a tax-
annuity, or endowment contracts)
7Normal distribution.
8Excess contributions plus earni
earnings) taxable in 2007.
9Cost of current life insurance p
AMay be eligible for 10-year tax
BDesignated Roth account distri
DExcess contributions plus earn
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in 2005
EExcess annual additions under
excess amounts under section 40
FCharitable gift annuity.
GDirect rollover to a qualified plgovernmental 457(b) plan, or an I
JEarly distribution from a Roth I
most cases, under age 59 ).
LLoans treated as distributions.
NRecharacterized IRA contributi
recharacterized in 2007.
PExcess contributions plus earni
in 2006.
QQualified distribution from a R
RRecharacterized IRA contributi
recharacterized in 2007.
SEarly distribution from a SIMPL
known exception (under age 59
TRoth IRA distribution, exceptio
If the IRA/SEP/SIMPLE box is check
traditional IRA, SEP, or SIMPLE dis
8Other If you received an annuity contrac
distribution, the value of the contr
when you receive it and should no
2a. When you receive periodic pa
contract, they are taxable at that
9aYour percentage of total If a total distribution was made to
distribution person, the percentage you receiv
9bTotal employee For a life annuity from a qualified
contributions plan (with after-tax contributions),
the employees total investment i
compute the taxable part of the di
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0 to 15 State Details If state or local income tax was wi
distribution, boxes 12 and 15 may
distribution subject to state and/o
Guide to Distri
Distribution Codes Explanations
1Early distribution, no known exception.
Use Code 1 only if the employee/t
and you do not know if any of the
2, 3, or 4 apply. Use Code 1 even i
medical expenses, health insuran
education expenses, a first-time h
reservist distribution under sectio
Code 1 must also be used even if
she modifies a series of substanti
section 72(q), (t), or (v) prior to th
2Early distribution, exception applies.
Use Code 2 only if the employee/t
and the distribution is: A Roth IRA conversion (an IRA c
A distribution made from a quali
of an IRS levy under section 6331.
A section 457(b) plan distributio
additional 10% tax. But see Sectio
R-10 for information on distributio
additional tax.
A distribution from a qualified re
service where the taxpayer has re
A distribution from a governmen
safety employee after separation
reached age 50.
A distribution that is part of a se
payments as described in section
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A distribution from a governmen
long-term care insurance premiu
under section 402(l).
Any other distribution subject to
(t), or (v) that is not required to b
3Disability.
For these purposes, see section 7
4Death.
Use Code 4 regardless of the age
indicate payment to a decedents
trust. Also use it for death benefit
not made as part of a pension, pr
5Prohibited transaction.
Use Code 5 if there was a prohibit
Code 5 means the account is no l
6Section 1035 exchange.
Use Code 6 to indicate the tax-fre
annuity, or endowment contracts
7Normal distribution.
Use Code 7: (a) for a normal distri
traditional IRA, section 401(k), or
taxpayer is at least age 591/2, (b)
reconversion if the participant is a
distribution from a life insurance,
for reporting income from a failed
sections 7702(g) and (h). See Rev
Code 7 with Code A, if applicable.
code applies. Do not use Code 7 f
Note: Code 1 must be used even i
or she modifies a series of substa
under section 72(q), (t), or (v) prio
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NT ACCOUNT. An IRA is a personal savings plan that
o individuals saving money for retirement purposes
vings plan that allows people who are eligible to save for
in amount each year. The interest earned in a Traditional IRA grow
s that the Traditional IRA owner doesn't pay taxes until the amount
and larger balances. Ideally, amounts are distributed from the IRA
person is in a lower tax bracket, which results in lower taxes on the
opened, it must be opened by your tax filing due date, which is
wing the year to which the contribution applies. Tax Extensions do
nefit to a Traditional IRA is that contributions can be tax
opportunity to grow tax-deferred. Individuals who have earned
00 for the 2006 tax year. Also, earners age 50 and over can also
ear into an education IRA, the money grows tax-free and has
stribution to the beneficiary who uses it for authorized education
y common in that they restrict who can make contributions to them,
ribue each year, and the limits on the type of education expenses
ial planner should be able to help you in firguring out what IRA
n) IRA is an employee benefit plan with compliance and
n those for qualified plans. For that reason, SEP IRAs are generally
small companies (under 100 employees). Sole proprietors may start
lso. SEP IRA's are sometimes used in place of Keogh retirement
e fewer administrative and tax filing requirements. Contributions,
yers, must be made to IRAs because IRAs are the funding vehicle
an important benefit because interest accrues on top of interest,
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re limited to 25% of adjusted gross income or $41,000,
can contribute up to $4,000 or $4.500 if over 50 years of age, to
tax filing date (including extensions) for its business to make any
siness to open up a SEP IRA you must complete an IRA
SEP.
for employees (SIMPLE) IRA plan, is an IRA based employer
MPLE IRA can be started by any business, including sole
corporations. However, the business must meet the 100 employee
equirements must be followed every year, in order for the SIMPLE
regulatory requirements. The SIMPLE IRA is a fairly new IRA
ry popular.
ich lets eligible individuals save for retirement by contributing a
t earnings on investments in a Roth IRA grow on a tax-deferred
butions are qualified. This is a very important feature, because as
t earnings, the result is a comounding effect and therefore much
oth IRA?
d falls within the income limits can establish a Roth IRA. Unlikeas no age limit for contributions, so individuals can continue to
Traditional IRA, individuals can only contribute until age 70 1/2.
u may contribute to a Roth IRA if you have taxable compensation
income or MAGI is less than $110,000 ($160,000 if you are
$10,000 if you are married, lived with your spouse and file a
may contribute to a Roth IRA is gradually less if your modified
$95,000 and $110,000 (between $150,000 and $160,000 if you
and between $0 and $10,000 if you are married, lived with your
.
non-working spouses save for retirement by investing in a
n contribute up to $8,000 to either type of plan for the 2006 tax
r age 50, as long as the total IRA contribution is less than their
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f the plan.
ed this year. The
llover, a transfer or conversion
A contribution; or you may
nts, as nonperiodic payments,
rally taxable. If there
ay not have all the facts
nt. In that case, the first box in
er was unable to
d box 2a should be blank.
ution from a qualified
2, 1936 (or you are the
e January 2, 1936), you may
nt as a capital gain on Form
40)).
form with which an individual reports his or her distributions
s, retirement plans, IRAs, insurance contracts and/or pensions. Theluded on the form: the gross distribution paid during the given tax
n that is taxable, the federal income tax that has been withheld, the
ent or premiums paid, and a code that represents the type of
to the owner of a plan if he or she has made distributions of $10 or
r. The form is mailed to recipients by January 31 of the year after the
ses, the individual needs to attach a copy of Form 1099-R to his or
IRS and the municipal or state tax department (if applicable) all
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. Include this amount
ithheld, and if box 4 shows
h Copy B to your return.
es investment in theif any, recovered tax free this
in a designated Roth account;
mercial annuities or insurance
e nontaxable part of a
ution from a qualified
employers company, the net
increase in value of such
d only when you sell the
lude it in your gross income
stribution you received.
ributions,
ception (in most cases, under
plies (under age 59 ).
ree exchange of life insurance,
.
ngs/excess deferrals (and/or
rotection.
option (see Form 4972).
bution.
ings/excess deferrals taxable
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section 415 and certain
(b) plans.
n, a 403(b) plan, aA.
A, no known exception (in
n made for 2007 and
ngs/excess deferrals taxable
th IRA.
n made in 2006 and
E IRA in first 2 years, no
).
applies.
ed, you have received a
ribution.
t as part of a
act is shown. It is not taxable
t be included in boxes 1 and
ments from the annuity
ime.
more than one
ed is shown.
lan or from a 403(b)
an amount may be shown for
the contract. It is used to
stribution.
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thheld from the
show the part of the
local tax.
ution Codes
xpayer has not reached age 591/2
exceptions under Distribution Code
if the distribution is made for
e premiums, qualified higher
ome purchase, or a qualified
72(t)(2)(B), (D), (E), (F), or (G).
taxpayer is 591/2 or older and he or
lly equal periodic payments under
e end of the 5-year period.
xpayer has not reached age 591/2
nverted to a Roth IRA).
fied retirement plan or IRA because
that is not subject to the
n 457(b) plan distributions on page
ns that may be subject to the 10%
tirement plan after separation from
ached age 55.
tal defined benefit plan to a public
rom service where the taxpayer has
ries of substantially equal periodic
72(q), (t), or (v).
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tal plan for the payment of health or
s for a retired public safety officer
an exception under section 72(q),
reported using Code 1, 3, or 4.
(m)(7).
f the employee/taxpayer to
beneficiary, including an estate or
payments made by an employer but
fit-sharing, or retirement plan.
d (improper) use of the account. None
nger an IRA.
exchange of life insurance,
nder section 1035.
bution from a plan, including a A
ection 403(b) plan, if the employee/
for a Roth IRA conversion or
t least age 591/2, and (c) to report a
nnuity, or endowment contract and
life insurance contract under
. Rul. 91-17, 1991-1 C.B. 190. Use
Generally, use Code 7 if no other
r a Roth IRA.
a taxpayer is 591/2 or older and he
tially equal periodic payments
r to the end of the 5-year period.
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nings) taxable in 2007
under section 408(d)(4), unless
for corrective distributions of
ions, and excess aggregatepplies. See Corrective
Revocation or Account Closure on
option (see Form 4972).
bution.
ings/excess deferrals taxable
section 415 and certain
(b) plans.
n, a 403(b) plan, a
A.
A, no known exception (in
n made for 2007 and
ngs/excess deferrals taxable
th IRA.
n made in 2006 and
E IRA in first 2 years, no
).
applies.
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Types Of Source Document For 1099-R
1 Organizer Page
2 1099-R
3 Handwritten Information
4 Typed Information/Printed Income Summary
SOURCE DOCUMENT
1 Organizer Page
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FORM 1099R
2 - 1099-R
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Sample 1
Sample 2
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Input Screens in Tax Softwares
1 W3
2 W6
3 IRS - 1099-R
W3 W6
Box Input Screen Box Box
1 Gross distribution W3/W6/IRS 48 60
2a Taxable amount W3/W6/IRS 50 61
2b Taxable amount not determined W6/IRS N/A 62
Total Distribution W6/IRS N/A 63
3 Capital gain (included in box 2a) W3/W6/IRS 52 64
4 Federal income tax withheld W3/W6/IRS 54 65
5
W6/IRS N/A 66
6
W6/IRS N/A 677 Distribution code(s) W6/IRS N/A 68
X if IRA Distribution W3/W6/IRS 92 69
8 Others W6/IRS N/A 70
9a W6/IRS N/A 71
9b Total employee contributions W6/IRS N/A 73
10 State Tax Withheld W3/W6/IRS 56 74
11 State/Payer's state no. W6/IRS N/A 51
12 State Distribution W6/IRS N/A 75
13 Local Tax withheld W3/W6/IRS 56 76
14 Name of Locality W6/IRS N/A 77
15 Local Distribution W6/IRS N/A 78
Employee contributions/Designated Roth contributionsor insurance premiums
Net unrealized appreciation in
employers securities
Your percentage of totaldistribution.
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Output
If the distribution is IRA, then it will flow to 1040 line no-15a
If the distribution is PENSIONS/ANNUITIES, then it will flow to 1040 line no-1
If the distribution is IRA, then it will flow to 1040 line no-15b
If the distribution is PENSIONS/ANNUITIES, then it will flow to 1040 line no-1
Schedule D 1040 Line 13
1040 Line 64
Schedule A Line 5
Schedule A Line 5
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6a
6b
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69
70&71
72
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73
74-78