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Form 1099-R: Tax Filing For Retirement Accounts

Form 1099-R: Tax Filing for Retirement Accounts

The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020 eliminated the need for retirement account holders to take Required Minimum Distributions (RMDs) in 2020. While many individuals simply did not take their RMD, some had already taken some or all of it before the CARES Act was passed in March. In this case, many returned the amount withdrawn to their retirement account – effectively undoing the amount already withdrawn. Now as we approach tax time, many of these same individuals are receiving Form 1099-R from their custodian reporting the initial withdrawal only. This is correct and it is the taxpayer’s responsibility to correctly report the amount that was returned to their retirement account.

Why Did I Receive a Form 1099-R?

You should expect to receive a Form 1099-R if there are any withdrawals from your retirement account. The Form 1099-R reflects the total, or gross, distributions made. In other words, the Form 1099-R will NOT make any mention of returned funds or the type of withdrawal that was made.

How Do I Reflect The “RMD Reversal”?

Form 5498 will later be sent to the IRS showing all money returned/deposited into your retirement account – but this form is not due to the IRS until May 31st so it will not be part of your tax preparation. The custodian sends this form directly to the IRS.

A Similar Situation – Qualified Charitable Distributions (QCDs)

QCDs can also cause confusion during tax time because they are reported as a normal distribution on Form 1099-R.  In other words, the Form 1099-R will NOT make any mention of your QCDs. I previously wrote a blog on this topic that you can read by clicking here.

What Do You Need To Do?

Inform your tax preparer. It is your responsibility to correctly report the net taxable retirement plan distributions and any QCDs on your tax return. You should inform your tax preparer so that they can report the appropriate amount as non-taxable on your return.

For those that prepare your own taxes, please follow the IRS guidelines on how to properly report your retirement plan activity. In short, this will all be reported on Line 4 of Form 1040: “IRA distributions”. You will report the amount quoted on your Form 1099-R on Line 4a. You will then only put the taxable amount on Line 4b.

For more information about the tax reporting guidelines outlined above please see the IRS website or reach out to a tax professional. As always, please reach out to your Wealth Advisor with any questions and to discuss tax planning strategies for 2021.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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