IRS Form 1099-R (2021): Distributions From Pensions

What IRS Form 1099-R (2021) Is For

IRS Form 1099-R (2021) reports distributions from pensions, annuities, retirement plans, and insurance contracts when payments of $10 or more occur during the calendar year. The form provides key details such as the gross distribution, taxable amount, and specific distribution codes that describe the nature of the withdrawal. It applies to transactions involving normal distributions, early distributions, Roth IRA distributions, and direct rollovers under qualified plans. By filing this form correctly, both plan participants and the IRS can ensure that taxable and non-taxable amounts are accurately recorded for the current tax year.

When You’d Use IRS Form 1099-R (2021)

The following examples describe common scenarios where the form is required:

• Distributions from pensions, annuities, or profit-sharing plans: This form must be issued when a plan participant withdraws money from a qualified retirement plan or receives annuity payments during the tax year.
  
  
• Early distributions or exceptions: It is required when funds are withdrawn before age 59½, unless a known exception applies, such as disability or medical hardship.
  
  
• Direct rollovers or transfers: It is used for a direct rollover or a designated Roth account distribution when funds are moved directly between qualified plans or IRAs.
  
  
• Excess contributions or excess deferrals: It must be filed when excess contributions or deferrals are returned or corrected during the same calendar year.
  
  
• Death benefits and charitable gift annuities: It is required when a decedent’s beneficiary receives reportable death benefits or when a payment is made under a charitable gift annuity.

Taking care of any unfiled individual returns ensures all retirement distributions are reported accurately and helps avoid IRS penalties.

Key Rules or Details for the 2021 Tax Year

Several key requirements apply when preparing or reviewing IRS Form 1099-R (2021). These rules ensure accurate tax reporting and help both payers and recipients meet IRS compliance standards:

• $10 Minimum Reporting Threshold: Any distribution of $10 or more from a retirement account must be reported on IRS Form 1099-R (2021), regardless of whether the distribution is taxable.
  
  
• Distribution Codes in Box 7: The correct distribution code must be entered to identify the type of transaction; for example, code 1 is used for early distributions, code 7 for normal distributions, code G for direct rollovers, and code P for the return of excess contributions.
  
  
• Roth IRA and Designated Roth Accounts: Qualified distributions from a Roth IRA or designated Roth account are tax-free when the five-year rule is met and the taxpayer is at least 59½ years old.
  
  
• Rollovers, Transfers, and Recharacterizations: Trustee-to-trustee rollovers, recharacterized IRA contributions, and qualified plan loan offsets must be reported correctly to show whether the distribution is taxable or nontaxable.

Step-by-Step (High Level)

The following steps outline how taxpayers and plan administrators should handle IRS Form 1099-R (2021) to ensure accurate and timely reporting:

1. Receive and Review the Form: The recipient must confirm that the gross distribution, taxable amount, and applicable earnings match the information on their plan statements for the current tax year.
   
   
2. Verify Account Information: It is essential to ensure that the correct account type—such as a traditional IRA, SIMPLE IRA, or non-qualified annuity—is selected and that the IRA/SEP/SIMPLE checkbox is checked correctly.
   
   
3. Confirm Distribution Codes: Box 7 must reflect the correct distribution code for the type of transaction, including a qualified plan loan offset, early distribution, or normal distribution, to prevent discrepancies with the IRS.
   
   
4. Report on the Tax Return: The distribution details must be entered on the appropriate lines of Form 1040, showing the taxable amount and specifying any Roth IRA distribution or direct payment made under a qualified plan.
   
   
5. File or Correct Errors Promptly: If errors are identified, a corrected Form 1099-R must be issued immediately, and any changes should be reflected in the amended tax return to maintain accuracy.

If you need expert support to resolve tax issues or respond to IRS notices about your retirement income, consider appointing an IRS Power of Attorney.

Common Mistakes and How to Avoid Them

Many taxpayers and payers make errors when completing IRS Form 1099-R (2021). The following are the most frequent issues and how to prevent them:

• Using incorrect distribution codes: Always verify that the correct distribution code is entered in Box 7, such as code 1 for early distributions, code 7 for normal distributions, and code G for direct rollovers, to ensure that the IRS correctly recognizes whether an exception applies.
  
  
• Reporting Non-Reportable Transfers: Avoid reporting trustee-to-trustee transfers of traditional IRA assets, as only rollovers, deemed distributions, or qualified plan loan offsets should be reported on the form.
  
  
• Failing to check “Taxable amount not determined”: When the taxable portion or after-tax contributions cannot be accurately calculated, check this box to explain why Box 2a is blank.
  
  
• Omitting recharacterized or excess contributions: Always report recharacterized IRA contributions or excess deferrals on separate forms using the proper distribution code to ensure compliance.
  
  
• Reporting inaccurate fair market values: Confirm that the readily available fair market value (FMV) is accurate before filing, since incorrect reporting may result in additional taxes or penalties. 

What Happens After You File

Once IRS Form 1099-R (2021) is filed, the IRS compares the information you report with data submitted by plan administrators to ensure accuracy. If discrepancies are found in the taxable amount or distribution codes, the IRS may issue a notice requiring clarification or correction. Early withdrawals that do not qualify for an exception are subject to additional taxes calculated under applicable tax laws. If a permissible withdrawal, rollover, or qualified plan loan offset is correctly reported, no extra tax applies. 

If you are unable to pay your full tax bill from pension or IRA distributions, you may qualify for an Offer in Compromise to settle with the IRS for less.

FAQs

What distributions are reported on Form 1099-R (2021)?

Form 1099-R (2021) reports distributions from pensions, annuities, profit-sharing plans, IRAs, and insurance contracts. It includes lump sum distributions, dividend distributions, and deemed distributions under employee plans. Each reportable event must reflect the correct distribution code to show whether it is taxable or qualifies as an exception.

How are qualified plan loans treated?

A qualified plan loan treated as a deemed distribution is taxable and must be reported on Form 1099-R (2021). Even when the funds remain in the plan, it is considered a distribution under IRS rules, and the applicable earnings must be included in the reported taxable amount.

What happens if I recharacterize an IRA contribution?

A recharacterized IRA contribution must be reported on a separate Form 1099-R, using the correct distribution code, to indicate the transfer between IRA types. The transaction is considered non-taxable if completed within the allowed time frame under IRS regulations.

How do I report a prohibited transaction or IRS levy?

You must use code E for distributions under employee plans resulting from a prohibited transaction or IRS levy. These distributions are fully taxable and must be included in your total taxable income for the year, as reported on your individual tax return.

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