Did you withdraw funds from your retirement plan or transfer funds between accounts during the previous calendar year? If so, you should expect to receive a 1099-R in the mail around the end of January. Don’t ignore that 1099-R, because you’ll need to report it on your income tax return. Read on to learn more about why you’re receiving a 1099-R and what to do with it.
What is a 1099-R?
A 1099-R is an IRS form sent to participants who withdrew funds from their 401(k) plan, made excess contributions to their 401(k), or rolled their funds into another qualified account during the previous calendar year. Your plan administrator should prepare and send a 1099-R to both you and the IRS to report a distribution from your retirement plan. You can find out more about 1099-Rs here.
Will I have to pay taxes on the distribution?
Both taxable and nontaxable distributions require a 1099-R form. Whether or not you’ll be subject to taxes depends on the type of distribution.
Generally, a direct rollover (or direct transfer) of funds into another qualified account will not be a taxable distribution. If a custodian has merely transferred your funds from one qualified account to another – e.g. from one 401(k) to a new 401(k) plan or from your 401(k) to an IRA – you won’t be taxed on those funds. Again, the funds must be directly transferred from one custodian to another, either by direct wire, ACH, or by check made out to the new custodian/account.
An indirect (or 60-day) rollover is one where you receive a check made out to yourself (and not to the custodian of your account). In this situation, Guideline is required to withhold 20% of the disbursement for federal income taxes (up to the amount of cash and property received other than employer stock) and remit them to the IRS. This will be reflected on the 1099-R. This means that, in order to roll over the entire disbursement in a 60-day rollover, you must use other funds to make up for the 20% withheld. If you do not deposit the entire amount of the disbursement within 60 days of receiving the funds, the portion not rolled over will be taxed and will be subject to a 10% additional income tax on early distributions if you are under age 59 1/2 (unless an exception applies).
Learn more about how rollovers are taxed here.
General distributions from traditional 401(k) plans, including normal distributions, hardship withdrawals, and excess deferral returns are taxable. However, distributions from Roth accounts are generally not.
Read our tax notice for more information about how different types of rollovers and distributions from your Guideline 401(k) may be taxed.
What do I do with my 1099-R?
Easy, give it to your accountant or tax preparer! Your 1099-R is an important tax document and is required for filing your taxes. Your 1099-R will specify the gross amount of your distribution, the taxable amount reportable as income, and the Federal and State withholding amounts. Additionally, codes on your 1099-R state what kind of distribution was made and whether it is subject to additional taxation.
What about Form 945?
An IRS Form 945 is used to report withheld federal income taxes from non-payroll payments, including distributions from 401(k) plans. When taxable distributions are made from a 401(k) plan, income tax is generally withheld from the contributions. If taxable withdrawals are made from a 401(k) plan, Guideline will file a Form 945 on behalf of the plan.