Form 1099-R Must-Do’s

Whether you’re working through your tax forms yourself or gathering information for your tax preparer, there are a few things you should know before sending your documents off to the powers that be. Here we’ll discuss a few commonly overlooked factors about Form 1099-R.

A 1099-R is a tax form issued when a distribution from an IRA is taken for that tax year. 

Charles Schwab and Co. sends out Form 1099-R to Market Street clients in January of each year, so keep your eyes on your inbox or mailbox if you took a distribution from your IRA last year.

Any distributions reported on Box 2a of your 1099-R are considered taxable income to you. Most of the time Box 2a is accurate, but there are a few exceptions where Market Street can help correct a mistake.

Roth Conversions

If you transferred funds from your Traditional IRA to your Roth IRA last year, you’ll receive a Form 1099-R for the distribution from your Traditional IRA. 

Distributions aren’t always taxable, but check Box 2a of the 1099-R to see if yours was marked as such. Give your Market Street Advisor a heads up if there’s any confusion, like if you made a non-deductible contribution to your IRA then converted that contribution to a Roth IRA, for example.

60-Day IRA Rollovers

A 60-Day IRA Rollover essentially lets you take a short-term loan from your IRA. If you deposit the funds back into your IRA within 60 days, you won’t get slapped with taxes.

Only one 60-Day IRA Rollover is allowed every 12 months, so make yours count! Most Market Street clients use this as a one-off solution. 

For example, imagine a retiree who needs money for a down payment on a new home, but they haven’t sold their old home yet. They can do a 60-Day IRA Rollover for the down payment, then replenish the IRA after selling their original home.

Again, Box 2a of your 1099-R will show whether your distribution is taxable. If you make a 60-Day IRA Rollover, just let us know how much you rolled over and we’ll take care of the rest. You should have a receipt showing your deposit back into your IRA within the 60-day timeframe — reach out to your Market Street Advisor if you need a copy of that receipt.

Qualified Charitable Distributions

If you’re over the age of 70 ½, you can make a Qualified Charitable Distribution (QCD) — a direct transfer from your IRA to a charity of your choice. That distribution can satisfy some or all of your IRA Required Minimum Distributions.

Here’s a bit of fine print to keep in mind: 

• the charity you choose must be a 501c3, and
• the gift must go directly from the IRA Custodian (Schwab in our case) to the charity

The benefit of a QCD is that you completely remove income from your tax return, which is far better than a tax deduction. Tax deductions are typically a percentage reduction on a piece of your income, but removing a lump sum from your income can lead to far greater savings.

Box 2a of the 1099-R shows the total distributions from your IRA — it doesn’t distinguish between taxable distributions and QCDs. That’s why it’s so important to let your CPA and your Market Street Advisor know the amount of QCDs you made last year, so they aren't taxed.

As always, please don’t hesitate to reach out to your Advisor at Market Street. We’re looking forward to hearing from you!