Your Tax Forms for Retirement Accounts

Managing retirement accounts involves specific tax reporting obligations. The associated paperwork is a direct communication link between you, your financial institution, and the Internal Revenue Service (IRS). This guide clarifies the purpose of common retirement tax forms, the information they contain, and how that information translates to your annual tax return.

Tax Forms for Retirement Contributions

When you contribute to a retirement account, your financial institution sends you Form 5498, “IRA Contribution Information.” You do not file this form with your taxes; it is an informational document sent to both you and the IRS that serves as an official record of your contributions for the year. Form 5498 details the total contributions made to Traditional and Roth IRAs, any funds moved into the account via rollover, and contributions to SEP or SIMPLE IRAs. Because you can make prior-year contributions until the tax filing deadline, you will likely receive Form 5498 in May, which may be after you have filed your taxes.

You may need to complete and file Form 8606, “Nondeductible IRAs,” with your tax return. This form is used to report nondeductible contributions to a traditional IRA. Tracking these contributions creates a “basis” in your IRA, which represents money that can be withdrawn tax-free in the future. Failing to track this basis means you could mistakenly pay tax on the same money twice. Form 8606 is also used for reporting Roth IRA conversions or distributions.

Understanding Distribution Tax Forms

When you withdraw money from a retirement plan, the financial institution reports the transaction to you and the IRS using Form 1099-R. You will receive this form for distributions of $10 or more from pensions, annuities, IRAs, or similar plans. This document is used to report your retirement income and any taxes you may owe. The form contains several boxes with details about your withdrawal:

• Box 1, “Gross distribution,” shows the total amount of money you took out of the account before any withholdings for taxes.
• Box 2a, “Taxable amount,” indicates the portion of the distribution subject to income tax. If you made nondeductible IRA contributions, this amount may be lower than the gross distribution, reflecting the tax-free return of your basis. If this box is blank, the payer could not determine the taxable portion, and you are responsible for the calculation.
• Box 4, “Federal income tax withheld,” shows how much was sent directly to the IRS on your behalf. This amount is treated as a tax payment when you file your return. Withholding is often optional for IRA distributions but can be mandatory for other plans unless you opt out.
• Box 7, “Distribution code(s),” is a single-digit or letter code that tells the IRS the reason for the distribution, which impacts how it is taxed.

The code in Box 7 explains the reason for the withdrawal, which helps you correctly report the distribution and any associated taxes or penalties. Common distribution codes include:

• Code 7: A normal distribution for a taxpayer over age 59½. This is taxable as income but not subject to an early withdrawal penalty.
• Code 1: An early distribution where no known exception to the 10% additional tax applies.
• Code 2: An early distribution where an exception to the penalty may apply.
• Code 4: A distribution due to the death of the account owner.
• Code G: A direct rollover, such as moving funds from a 401(k) to an IRA. These funds are not taxable, but the transaction must be reported.

Reporting Penalties and Additional Taxes

Some retirement account transactions can trigger additional taxes, which are calculated and reported on Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.” You must complete and file this form with your tax return; it is not sent by a financial institution.

A common reason for filing Form 5329 is to report the 10% additional tax on early distributions. If you withdraw money from a retirement plan before age 59½, the amount is subject to this penalty. There are exceptions, such as for disability or certain medical expenses, and Form 5329 is used to either pay the tax or claim an applicable exception.

Another reason to file Form 5329 is for excess contributions. If you contribute more to an IRA, Archer MSA, or Health Savings Account than allowed, the excess is subject to a 6% penalty for each year it remains in the account. The form guides you through calculating this penalty, and the total is then transferred to your main tax return.

Transferring Information to Your Tax Return

The final step is to transfer the figures from your retirement tax forms to your main tax return, Form 1040.

From your Form 1099-R, the total withdrawal amount in Box 1 is reported on Line 4a (IRAs) or Line 5a (pensions and annuities) of Form 1040. The taxable portion from Box 2a is entered on Line 4b or Line 5b. This ensures your retirement income is included in your adjusted gross income.

The federal income tax withheld, shown in Box 4 of Form 1099-R, is included on Line 25b of Form 1040. This amount is added to your other tax payments and credited toward your total tax liability.

If you completed Form 5329 for additional taxes, the total calculated is carried over to Schedule 2 (Form 1040), “Additional Taxes.” If you completed Form 8606 for nondeductible IRAs, you must attach it to your Form 1040.