What Is a 1099 Pension & How Do I Report It?

When you receive money from a pension, annuity, or other retirement plan, you will receive a Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. This document is an information return sent by your financial institution or plan administrator to both you and the IRS. It details the amount of the distribution you received during the year, and the term “1099 pension” is a common way of referring to the income reported on this form.

The purpose of Form 1099-R is to report any movement of funds from these types of accounts, regardless of the reason. Financial institutions are required to issue this form if you received a distribution of $10 or more. This reporting ensures that the IRS has a record of the income, which you must then account for on your annual tax return.

Understanding Your Form 1099-R

Box 1, labeled “Gross distribution,” shows the total amount of money you received from the retirement plan during the tax year. This figure represents the full amount paid out to you before any deductions for taxes or other expenses. It is the starting point for determining your tax liability and must be reported on your tax return.

Next, Box 2a, “Taxable amount,” indicates how much of the gross distribution is subject to federal income tax. This amount can be less than the figure in Box 1 if you made after-tax contributions to your retirement plan. If Box 2b, “Taxable amount not determined,” is checked, it means the payer could not calculate the taxable portion, and you are responsible for determining the correct amount.

Box 4, “Federal income tax withheld,” shows the amount of federal income tax that was already paid on your behalf. This money was deducted from your distribution and sent directly to the IRS. You will claim this amount as a payment on your tax return, which can reduce the total tax you owe or increase your refund.

Finally, Box 7 contains “Distribution code(s),” which explain the nature of your distribution to the IRS. A Code 7 signifies a normal distribution for those over age 59 ½. A Code 1 indicates an early distribution, which may be subject to a penalty, while a Code 2 signifies an early distribution with a known exception. Other codes, like 4 for a death benefit or G for a direct rollover, provide further context for the distribution.

Common Reasons for Receiving a 1099-R

The most straightforward reason for receiving a 1099-R is taking normal distributions from a retirement plan. This occurs when you have reached retirement age, which the IRS defines as 59 ½. At this point, you can withdraw funds from your pension, 401(k), or IRA without incurring an early withdrawal penalty, though the distributions are still subject to ordinary income tax.

Conversely, taking an early distribution from your retirement account before reaching age 59 ½ will also generate a Form 1099-R. These withdrawals are not only taxable as income but may also be subject to an additional 10% tax unless you qualify for an exception. The form will indicate an early distribution with a specific code in Box 7.

Moving funds between retirement accounts, known as a rollover, is another common trigger. A direct rollover, where the money is sent from one financial institution directly to another, is a non-taxable event but is still reported on a 1099-R. An indirect rollover, where you receive a check that you then have 60 days to deposit into another retirement account, is also reported and requires careful handling to avoid taxes and penalties.

Distributions can also occur for reasons other than retirement. If you receive payments from an inherited retirement account as a beneficiary, you will get a 1099-R. If you begin receiving payments because you have become totally and permanently disabled, these disability distributions are reported on the form. Defaulting on a loan from your 401(k) can be treated as a taxable distribution and result in a 1099-R.

Tax Implications and Reporting

The gross distribution from Box 1 of the 1099-R is reported on Line 5a of Form 1040. The taxable portion of that distribution, found in Box 2a, is entered on Line 5b. If the entire distribution is taxable, the amounts on Lines 5a and 5b will be the same. Any federal income tax withheld, as shown in Box 4, is reported on Line 25d of your Form 1040, counting toward the total tax payments you have already made.

If your distribution was a non-taxable rollover, the reporting process is different. You will still report the gross distribution from Box 1 on Line 5a of your 1040. However, you will enter zero on Line 5b for the taxable amount and write the word “ROLLOVER” next to the line to indicate that the funds were moved to another qualified retirement account and are not subject to tax.

In situations involving an early distribution, you may need to file an additional form. If you were under age 59 ½ at the time of the withdrawal and a code ‘1’ appears in Box 7 of your 1099-R, you may be subject to a 10% additional tax. This penalty is calculated and reported on Form 5329, Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts. The result from Form 5329 is then carried over to your Form 1040.

Your Form 1099-R may also show state tax withheld in Box 14. This amount is relevant for your state income tax return. The specific rules for reporting pension income and claiming withheld state taxes vary, so you will need to follow the instructions for your particular state’s tax forms.