IRS Form 1099-R (2018): Distributions From Pensions

What IRS Form 1099-R (2018) Is For

IRS Form 1099-R (2018) is used to report distributions of ten dollars or more from retirement plans, annuities, IRAs, and insurance contracts. A plan administrator or financial institution issues the form. It allows the Internal Revenue Service to verify that all taxable amounts from pensions and profit-sharing plans are accurately reported on your federal income tax return. It also helps identify rollovers, early distributions, and other reportable transactions for the applicable tax year.

When You’d Use IRS Form 1099-R (2018)

You would use IRS Form 1099-R (2018) when you receive a taxable or nontaxable distribution from a retirement account or another eligible source:

• Pension Plans: You must use this form when you withdraw funds or receive periodic payments from an employer-sponsored pension plan during the calendar year.
  
  
• IRA Distributions: This form applies when you take a lump sum or recurring payment from a traditional IRA, Roth IRA, or another qualified retirement plan.
  
  
• Annuity Contracts: You must report any payment or cash surrender value received from an annuity contract, life insurance contract, or similar insurance protection.
  
  
• Profit Sharing and Qualified Plans: The form is required when distributions occur from profit-sharing arrangements or other qualified plans such as 401(k) or 403(b) accounts.
  
  
• Charitable Gift Annuities: You must use this form to report distributions made under charitable gift annuities or endowment contracts that include current life insurance protection.

Taking care of any unfiled individual returns is essential for avoiding IRS penalties and ensuring all retirement distributions are properly reported.

Key Rules or Details for the 2018 Tax Year

Several vital updates and requirements apply to IRS Form 1099-R (2018), and understanding these details ensures accurate reporting of your retirement distributions:

• Roth IRA Conversion Restrictions: Beginning in 2018, taxpayers could no longer recharacterize Roth IRA conversions back to traditional IRAs, meaning once converted, the change became permanent for that tax year.
  
  
• Distribution Threshold: All plan administrators were required to file Form 1099-R for any distribution of $10 or more, including trustee-to-trustee transfers that are not taxable.
  
  
• New Distribution Codes: Two new codes, Code C for reportable death benefits and Code M for disaster-related distributions, were introduced to clarify the nature of distributions for proper tax treatment.
  
  
• Direct Rollover Rules: A direct rollover labeled with Code G must report the total amount in Box 1, while showing zero taxable amount in Box 2a, if the funds were moved directly between eligible retirement plans.
  
  
• Qualified Plan Loan Offsets: When a plan participant fails to repay a qualified plan loan after separating from employment, the amount is treated as a deemed distribution and must be reported on Form 1099-R.

If you’ve been penalized for mistakes or late filing of Form 1099-R, our IRS penalty abatement service could help reduce or eliminate those penalties.

Step-by-Step (High Level)

To accurately report your retirement income using IRS Form 1099-R (2018), you should follow these general steps to ensure all information is complete and consistent:

1. Check Personal and Payer Information: Verify that your name, address, and Social Security number are correct and that the plan administrator’s details are accurate.
   
   
2. Review Gross Distribution (Box 1): Confirm that the total distribution shown includes both taxable and non-taxable portions from your retirement plan or annuity contract.
   
   
3. Determine Taxable Amount (Box 2a): Check if the taxable amount has been provided or marked as “Taxable amount not determined,” and calculate the taxable portion if needed.
   
   
4. Understand Distribution Codes (Box 7): Review the distribution codes carefully to identify whether your withdrawal was an early distribution, a normal distribution, or a rollover.
   
   
5. Check Federal Income Tax Withholding (Box 4): Ensure that any federal income tax withheld aligns with your overall liability as reported on your tax return.
   
   
6. Report on Tax Return: Enter the figures from Form 1099-R on the correct lines for IRA distributions, pensions, or annuities, ensuring that all taxable amounts and rollovers are clearly indicated.

If you need assistance dealing with the IRS about your retirement income, you can appoint an IRS Power of Attorney to communicate and resolve issues on your behalf.

Common Mistakes and How to Avoid Them

Taxpayers often make errors when reporting retirement distributions on IRS Form 1099-R (2018); understanding these issues can help prevent penalties and mismatched records:

1. Incorrect Rollover Reporting: Many taxpayers mistakenly report direct rollovers as taxable income; always confirm that Code G appears in Box 7 and note the transfer as a nontaxable direct rollover on your tax return.
   
   
2. Misunderstanding Box 2a: When Box 2a is marked “Taxable amount not determined,” you must calculate the taxable portion using documentation that shows your total after-tax contributions.
   
   
3. Ignoring Plan Loan Offsets: If you have an unpaid plan loan offset or deemed distribution, it must be reported to avoid discrepancies that could trigger an IRS levy or additional taxes.
   
   
4. Omitting Multiple Forms: When you receive more than one Form 1099-R, such as from different retirement plans or a service retirement account, you must report each form to ensure complete accuracy.
   
   
5. Overlooking Additional Taxes: If you take an early distribution before age fifty-nine and one-half, you must file Form 5329 when claiming an exception, such as disability or substantially equal periodic payments.
   
   
6. Failing to Consult a Professional Tax Adviser: Complex situations, including employee stock ownership plans or excess contributions, often require tax advice from a qualified professional to avoid filing errors.

What Happens After You File IRS Form 1099-R (2018)

After filing your federal income tax return, the Internal Revenue Service compares the information you reported with the data provided by your plan administrator. If your taxable amount, distribution codes, and gross distribution match correctly, your filing is processed normally. If any differences are detected, the IRS may issue a CP2000 or CP2501 notice requesting clarification or supporting documentation. 

FAQs

How does federal income tax apply to distributions reported on IRS Form 1099-R (2018)?

Distributions reported on IRS Form 1099-R (2018) are generally subject to federal income tax, depending on the taxable portion shown in Box 2a. Withdrawals from a designated Roth account may be tax-free if they meet qualified distribution requirements. Always verify the distribution code identifies whether your payment is taxable, nontaxable, or a rollover.

How are employee contributions reflected on IRS Form 1099-R (2018)?

Employee contributions are considered after tax amounts already included in your income in prior years. These contributions reduce the taxable amount of your gross distribution because taxes have already been paid. Review the distribution code to identify whether the payment involves designated Roth contributions or standard employee deferrals.

What does "gross distribution" mean on Form 1099-R (2018)?

The gross distribution shown in Box 1 represents the total amount paid out from your retirement account before any tax withholding or deductions. This includes both taxable and nontaxable amounts, such as rollovers or death benefit payments. 

What is net unrealized appreciation, and how does it affect taxes?

Net unrealized appreciation (NUA) refers to the increase in value of employer securities distributed from a qualified plan. The NUA portion is not immediately taxable when distributed; however, it becomes taxable when the securities are sold or otherwise disposed of.