IRS Form 1099-R (2020): Distributions From Pensions

What IRS Form 1099-R (2020) Is For

IRS Form 1099-R (2020) is an informational document used to report distributions of $10 or more from pensions, annuities, retirement accounts, and similar plans. It identifies both taxable and non-taxable amounts received from a qualified plan, IRA, or profit-sharing plan during the 2020 tax year. The form helps ensure that income from a retirement account is correctly reported on your tax return, showing the gross distribution, taxable amount, and specific distribution codes used by the IRS. By matching this information, the IRS confirms whether distributions have been appropriately declared for the calendar year 2020.

When You’d Use IRS Form 1099-R (2020)

You’ll typically use IRS Form 1099-R (2020) when you receive a distribution of $10 or more from a qualified retirement account or insurance-based plan.

• Retirement distributions: This form is used to report withdrawals from pensions, traditional IRA assets, or other qualified plans during the 2020 tax year.
  
  
• Designated Roth account distribution: This is required when funds are withdrawn from a designated Roth account or when a Roth IRA distribution occurs during retirement or during a conversion of a traditional IRA to a Roth IRA.
  
  
• Direct rollover: It is needed when you complete a G direct rollover or another direct payment transfer between eligible retirement plans.
  
  
• Excess contributions or deferrals: It applies if you withdraw excess contributions or excess deferrals to prevent penalties or additional taxes.
  
  
• Life insurance contracts or annuities: They are used when reporting distributions from life insurance contracts, charitable gift annuities, or nonqualified annuities connected to an employer or personal investment.

Addressing any unfiled individual returns ensures that all retirement account distributions are reported correctly and helps prevent IRS penalties.

Key Rules or Details for the 2020 Tax Year

For the 2020 filing year, IRS Form 1099-R included several significant rule changes and special provisions that affected the reporting of distributions.

• Required Minimum Distributions (RMDs): The SECURE Act increased the age for required minimum distributions from 70½ to 72, while the CARES Act suspended all RMDs for 2020 to provide financial flexibility during the pandemic.
  
  
• Coronavirus-Related Distributions: Qualified individuals were permitted to withdraw up to $100,000 from a retirement account without incurring the 10% early distribution penalty, and the taxable amount could be reported evenly over three years.
  
  
• Qualified Birth or Adoption Distribution: The SECURE Act introduced a penalty-free withdrawal of up to $5,000 for new parents, which was identified using the distribution code “BA” on Form 1099-R.
  
  
• Recharacterized IRA Contribution: Taxpayers who converted to a Roth account but later changed their decision could report a recharacterized IRA contribution to correct the conversion.
  
  
• Qualified Plan Loan Offset: Distributions resulting from loan defaults or a qualified plan loan offset required specific reporting to ensure proper tax treatment. 

If you’re assessed penalties due to errors or the late submission of Form 1099-R, ask about IRS penalty abatement to reduce or eliminate those charges.

Step-by-Step (High Level)

To ensure accuracy when reporting IRS Form 1099-R (2020), taxpayers should follow each step carefully and verify all amounts before filing their tax return.

1. Receive and review your Form 1099-R: Confirm that the gross distribution, taxable amount, and payer information are accurate and consistent with your personal account records.
   
   
2. Check distribution codes: Verify that the distribution codes in Box 7 correctly describe the type of distribution and indicate whether an exception applies to early withdrawal penalties.
   
   
3. Confirm withholding: Ensure that Box 4 accurately reflects the total additional taxes or federal income tax withheld by your plan administrator.
   
   
4. Calculate the taxable portion: If the taxable amount box is blank, determine it using IRS worksheets, especially when after-tax contributions are involved.
   
   
5. Identify direct rollovers: Look for Code G or other indicators of a direct rollover, which are non-taxable but must still be reported for IRS matching purposes.
   
   
6. Include Roth and traditional IRA data: Review both Roth IRA and traditional IRA assets to ensure they are correctly classified for tax purposes.
   
   
7. Submit with your Form 1040: Report all distributions on the appropriate lines for pensions or IRAs and include Form 5329 if early withdrawal penalties apply.

Common Mistakes and How to Avoid Them

Taxpayers often make errors when reporting information from IRS Form 1099-R (2020), which can result in additional taxes or IRS notices.

• Reporting the full distribution as taxable: Many taxpayers incorrectly report the entire amount in Box 1 as taxable income; you should calculate your taxable amount correctly if you made after-tax contributions.
  
  
• Ignoring distribution codes: Some taxpayers overlook or misinterpret the distribution code in Box 7; you should confirm that the code accurately reflects your withdrawal type to avoid unnecessary additional taxes or penalties.
  
  
• Reporting direct rollovers as income: A direct rollover or qualified plan loan offset should not be reported as taxable income; you must identify these correctly to prevent overstating your income.
  
  
• Overlooking Roth IRA distribution exceptions: If you qualify for a Roth IRA distribution exception, you should claim it to avoid the 10% early distribution penalty.
  
  
• Missing corrections or amendments: If you discover an error after filing, you should request a corrected form or submit an amended return to avoid being flagged for a prohibited transaction.

What Happens After You File

After filing IRS Form 1099-R (2020), the IRS reviews and matches the information on your tax return with the data submitted by your financial institutions. If discrepancies arise, the IRS may issue a CP2000 notice proposing additional taxes or corrections. The IRS also reviews entries for deemed distributions, reportable death benefits, and combined arrangements such as permissible withdrawals or excess deferrals. 

If your retirement distributions result in a tax liability, IRS payment plans can help you pay your tax over time and avoid further collection actions.

FAQs

What is considered a normal distribution on IRS Form 1099-R (2020)?

A normal distribution refers to payments made after reaching age 59 without penalty. These distributions from a qualified plan or retirement account are reported on Form 1099-R (2020) with a specific distribution code that shows the payment is fully taxable but not subject to additional penalties.

What is the difference between a designated Roth account distribution and a Roth IRA distribution?

A designated Roth account distribution comes from an employer’s retirement plan, while a Roth IRA distribution comes from an individual account. Both may qualify as a qualified distribution if held for five years, allowing the taxable amount to be excluded when an exception applies.

What should I do if my Form 1099-R shows a Code P or Code B?

Code P indicates that the income is taxable in a prior year, while Code B identifies a designated Roth account or a distribution to a Roth account. You should confirm whether your tax year requires an amendment to your return and ensure that the distribution codes are entered correctly.

Are charitable gift annuities or life insurance contracts reported differently?

Yes, charitable gift annuities, life insurance contracts, and nonqualified annuities each have unique distribution codes. These forms of distributions under employee plans may involve applicable earnings or current life insurance protection, and they must be reported on your tax return based on the correct gross distribution value.