By Sarah Brenner, JD
I have a 60 day rollover, and basically the client has what I believe is an uneducated tax preparer. The roll over occurred within the proper 60 days, the custodian sent out the 1099R as a distribution checking box 7, 1, because even they sent the check directly to the new custodian they did not receive a letter of acceptance, so they considered it a distribution.
I explained to the tax preparer he needs to complete a 1040 now, and by the end of May the client will receive a 5498 form from the new custodian reflecting a 60 day rollover occurred. The tax preparer says I am mistaken it is taxable now because he has a 1099 form saying it is.
Did I not explain this correctly? Thank you
This is an area where we see a lot of confusion during tax season. You are correct. A 60-day rollover must be handled on the tax return by the taxpayer. There will be nothing on the Form 1099-R to indicate that a rollover has happened. The form will show a taxable traditional IRA distribution. You are also correct that Form 5498 will later be sent to the IRS showing a rollover.
I found your website and wondered if you would be willing to answer what I think is a simple question about a 1099 R Form
I received a 1099 R Form from the company that manages my IRA, since I am of the age that I have to take the Required Mandatory Distributions.
For purposes of illustration …
In Box 1 it shows the Gross Distribution to be $80,000
In Box 2a it shows the Taxable Amount to be $80,000
In Box 2b it has a check mark
What is confusing is that the actual taxable amount is $79,000 when I complete the 8086 Form … as I have a basis in this fund. So when I get my distribution part of it is return of capital/the amount I paid in.
So I am wondering, should my 1099 R have a $0 amount in Box 2a, since they cannot know the actual amount that is taxable? Or are they correct in simply putting the same amount $80,000 in both Box 1 and 2a?
Your thoughts on this would be very much appreciated.
THANK YOU IN ADVANCE for the kindness of your response.
You are not alone in your confusion about how distributions are reported on Form 1099-R. The custodian has reported your IRA RMD correctly. The amounts in Box 1 and Box 2a should be the same. That is how the reporting instructions work. You are right that the custodian cannot know the taxable amount. This is where the taxpayer comes in. You will file Form 8606 to claim the basis in your IRA distribution. This is how the IRS will know that a part of your RMD is not taxable despite what is reported on Form 1099-R.
Question: I have a 60 day rollover, and basically the client has what I believe is an uneducated tax preparer. The roll over occurred within the proper 60 days, the custodian sent out the 1099R as a distribution checking box 7, 1, because even they sent the check directly to the new custodian they did not receive a letter of acceptance, so they considered it a distribution.