How to Report a 1099-R Code E Death Distribution
Received a Form 1099-R with Code E? This guide clarifies the tax reporting process for beneficiaries handling a retirement account death distribution.
Form 1099-R is an information return used to report payments from retirement plans, annuities, and similar arrangements. Individuals receive this form after taking a distribution of $10 or more from accounts like pensions, 401(k)s, or IRAs. The form provides details about the distribution, including the total amount paid and how much may be subject to tax, and is used for reporting retirement income on a federal tax return.
Defining a Code E Distribution
A Form 1099-R with a Code E in Box 7 indicates a distribution to a designated beneficiary following the death of an employee. This code is used for distributions from qualified plans, such as 401(k)s and pension plans, as well as from 403(b) plans. It is distinct from other codes that relate to distributions taken by the plan participant due to age, retirement, or disability.
When a plan participant dies, the remaining funds in their retirement account pass to their designated beneficiary. The payment of these funds is reported using Code E, which alerts both the beneficiary and the IRS that the distribution is a death benefit with specific tax implications.
Calculating the Taxable Portion
To determine the tax implications, examine specific boxes on Form 1099-R. Box 1 shows the gross distribution, which is the total amount of the death benefit you received. Box 2a, labeled “Taxable amount,” indicates the portion of the distribution subject to income tax.
If the deceased employee had an after-tax basis in the plan from non-Roth after-tax contributions, a portion of the distribution may be non-taxable. However, in many cases, the entire distribution is composed of pre-tax contributions and earnings, making the full amount taxable to the beneficiary.
If Box 2b, “Taxable amount not determined,” is checked, the responsibility for calculating the taxable portion falls to you. You would need to determine if the deceased employee had any after-tax basis in the account. If there is no basis, the entire distribution is generally taxable.
How to Report on Your Tax Return
When filing your federal income tax return, use the information from your Form 1099-R to report the distribution. The gross distribution amount from Box 1 is reported on Form 1040. For distributions from pensions and annuities, this amount is entered on Line 5a.
The taxable portion of the distribution, found in Box 2a of the 1099-R, is entered on Line 5b of Form 1040. This amount is then included with your other income to determine your total tax liability for the year.
It is important to accurately transfer the figures from the 1099-R to your tax return. The IRS uses its copy of the Form 1099-R to verify that you have reported the income correctly. Misreporting the amounts could lead to processing delays or a notice from the IRS.