What is Form 1099-R and why did I get one?

An old, well-known adage says that only two things in life are guaranteed: death and taxes. While we may not have much control over the first of life’s guarantees, we can aim to fully understand and be prepared for the second, right? Unfortunately, tax time often leaves people feeling overwhelmed and unclear. Things can get especially confusing when you receive a tax form you’ve never seen or don’t know what to do with—like Form 1099-R.

What is Form 1099-R?

The Internal Revenue Service (IRS) describes documents included in the 1099 series as “information returns,” used to report the various types of income your employer may pay you outside of your regular salary. Specifically, the IRS Form 1099-R is used to report distributions you may have received from your retirement account, individual retirement account (IRA), annuity, pension, etc.

However, this form is not only applicable to retirees who are drawing down their nest egg; there are a variety of situations in which someone who is still working may receive a 1099-R.

Why did I receive a Form 1099-R?

If you received a distribution from your retirement plan amounting to $10 or more during the previous tax year, you can expect to receive a copy of Form 1099-R. Additionally, if you took a loan from your retirement plan and allowed the outstanding loan balance to become a taxable distribution due to untimely payments or because you left your job before the loan was paid off in full, you should be on the lookout for a 1099-R as well.

The form is used to help the IRS determine how much taxable income you had the previous year—but keep in mind both taxable and non-taxable distributions will be listed on the form. Whether or not you’ll pay taxes on the distributions you received will depend on the type of distribution they are. For example:

• Termination/Hardship Distribution: Termination/Hardship Distributions from retirement plans are reported on 1099-R. The taxable amount will be reported in Box 2a. Box 7 will have a numeric or alpha code or both to indicate the type of distribution. You will receive two 1099-Rs if you have a distribution that includes Roth and non-Roth money.

• Loans defaulted while employed (deemed distributions): If you borrow money from your qualified retirement plan and the loan goes into default because you stopped making payments, failed to make the required payment amount, or failed to make timely payments, the loan becomes taxable. If it is, you will receive a 1099-R showing the taxable amount and Code “L” will be shown in Box 7.

• Loans offset upon termination of employment: If you terminate employment with a current loan (one that has not gone into default), the outstanding loan balance is included as part of your termination distribution and becomes taxable. You will receive a 1099-R showing the taxable amount and Code “M” will be shown in Box 7.

• Loans previously taxed upon termination of employment: If you take a termination distribution and you previously received a 1099-R for a loan default, the loan is not taxable a second time and will not be included in the termination distribution amount reported on the 1099-R.     

• Early distributions: Early cash distributions are taxable and may be subject to additional early distribution penalties.

• Rollovers: Direct rollovers from a previous qualified retirement plan to a new qualified plan or IRA generally are not taxed.

• Excess contributions: Distributions on excess contributions (other than Roth contributions) are deemed taxable income the year of the distribution.

As part of the SECURE Act, a new type of distribution was introduced: the Qualified Birth and Adoption Distribution. This type of distribution waives the 10 percent early withdrawal penalty and can be re-contributed. 

You should consult your tax advisor if you took a Qualified Birth and Adoption Distribution in the past year to understand the tax impact of this distribution on your situation.

Your 1099-R will include a lot of information and may seem overwhelming at first, but look for boxes that include the gross amount of your distribution, the taxable amount to be reported as income, federal and state withholding amounts, the type of distribution, and whether or not it may subject to additional taxes/penalties. It can be hard to determine why certain information is included in each box and what it means, but luckily, the IRS has a detailed document outlining all of the information included in your 1099-R as well as instructions on how to use the form, available here.

I received a Form 1099-R from Ascensus…now what?

If you received a Form 1099-R from Ascensus, that means you received a distribution of $10 or more from your retirement plan or you had an outstanding loan balance from your plan that became a taxable distribution.

If you have a 401(k) plan loan and are making timely payments on the loan, you will not receive a 1099-R from Ascensus. However, if payments are not made on time or you left your employer and the loan had not been repaid in full when you separated your employment, the loan will default. When the loan defaults, it becomes taxable, and you’ll receive a Form 1099-R for the tax year in which it defaulted. Both the gross and taxable amounts will include the loan balance at the time of the default, plus any accrued interest.

When will Ascensus send my Form 1099-R?

The IRS requires that Form 1099-R be sent by January 31 of the year following any 401(k) distribution amount of $10 or more. If you didn’t take any distributions last year or the amount of your distribution was less than $10, Ascensus will not send you a 1099-R.

When you receive your Form 1099-R, it’s important to remember that distributions from traditional 401(k) accounts are generally reportable on your income taxes. Please consult with your financial advisor or tax professional to determine the exact taxable amount and whether you need to file the form with your tax return. If you have any other questions relating to the Form 1099-R you received from Ascensus, please contact our customer care team at 888-652-8086.

Note: You may also receive a Form 1099-R if you are an alternate payee or beneficiary on a retirement account and you received a distribution from the account.