What Forms Are Used for an IRA Distribution?

An Individual Retirement Arrangement (IRA) distribution refers to money withdrawn from an IRA account, typically for retirement or reaching a certain age. Understanding the tax implications and proper reporting to the IRS is important for compliance. This process involves specific forms that summarize distribution details.

Understanding Form 1099-R

Form 1099-R, “Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.,” is the primary form for reporting distributions from retirement accounts, including IRAs. Your IRA custodian or financial institution issues this form by January 31st of the year following the distribution. It provides the IRS and the taxpayer with a detailed account of the money withdrawn.

Box 1, “Gross distribution,” shows the total amount withdrawn from the IRA before any deductions. Box 2a, “Taxable amount,” indicates the portion subject to income tax. If the payer cannot determine the taxable amount, Box 2a might be blank, and the “Taxable amount not determined” checkbox in Box 2b will be marked, requiring the taxpayer to calculate the taxable portion. Box 2b also has a “Total distribution” checkbox, indicating if the entire account balance was distributed.

Box 4, “Federal income tax withheld,” reports any federal income tax withheld from your distribution. Box 7, “Distribution code(s),” uses a code to identify the distribution type, influencing its tax treatment. For instance, ‘7’ is for a normal distribution, while ‘1’ indicates an early distribution with no known exception. Box 9b, “Total employee contributions,” shows your after-tax contributions, which are not taxable when distributed.

Reporting Your IRA Distribution on Your Tax Return

The information from Form 1099-R is used to complete your federal income tax return, Form 1040. The gross distribution from Box 1 and the taxable amount from Box 2a are reported on Form 1040. For example, these amounts are often reported on lines 4a and 4b of Form 1040.

If Box 2a on Form 1099-R is blank and the “Taxable amount not determined” box in Box 2b is checked, the taxpayer must calculate the taxable portion. This occurs if you have made non-deductible contributions to a traditional IRA, establishing a cost basis. You may need to use Form 8606, “Nondeductible IRAs,” to determine the taxable amount, as a portion may represent a return of previously taxed contributions. Federal income tax withheld from Box 4 of Form 1099-R is reported on Form 1040.

For certain adjustments or additional income related to IRA distributions, Schedule 1 (Form 1040) may be utilized. While main distribution amounts are on Form 1040, Schedule 1 can capture other income or adjustments that affect your adjusted gross income. Many states also require similar reporting of IRA distributions on state income tax returns.

Specific Distribution Types and Their Reporting

Certain IRA distributions have unique tax implications and may require additional forms. An early distribution, a withdrawal from an IRA before age 59½, is subject to a 10% additional tax on the taxable portion. This tax is reported on Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts,” which requires information on the penalty and any applicable exception codes.

Rollovers involve moving funds from one retirement account to another. A direct rollover, where funds are transferred directly between custodians, is not taxable and is indicated by codes like ‘G’ in Box 7 of Form 1099-R. These amounts are typically shown as non-taxable on Form 1040. If funds are received by the taxpayer in an indirect rollover, they must be redeposited into another qualified account within 60 days to avoid taxation and penalties.

Roth IRA distributions are treated differently based on whether they are qualified or non-qualified. A qualified Roth distribution is both tax-free and penalty-free, provided the account has been open for at least five years and the owner is age 59½ or older, disabled, or using the funds for a first-time home purchase. Non-qualified Roth distributions may be partially taxable, with the earnings portion potentially subject to tax and the 10% additional tax if taken before age 59½. Form 8606 may be used to track Roth IRA basis and determine the taxable portion of non-qualified distributions.

Qualified Charitable Distributions (QCDs) allow individuals aged 70½ or older to directly transfer funds from an IRA to an eligible charity, up to an annual limit. These distributions are not included in taxable income, even though they are reported on Form 1099-R. For inherited IRAs, the tax treatment depends on the beneficiary’s relationship to the deceased and required minimum distribution (RMD) rules. Spousal beneficiaries often have more flexibility, while non-eligible designated beneficiaries are generally subject to the 10-year rule, requiring the entire inherited IRA balance to be distributed by the tenth calendar year following the original owner’s death.