I rolled over money from my deferred compensation plan into my traditional IRA in 2017. It was two checks. I received a 1099-R for this transaction. Do I have to list the 1099-R on my taxes? And how will the IRS know that I did not spend this money and it went right into my IRA within days of it receipt?
Yes, you will have to list the 1099-R on your tax return.
As you may know, a distribution from a qualified retirement plan may be excluded from gross income if the recipient rolls over the distribution to another qualified plan or IRA. A rollover generally must be made within 60 days of receipt of the distribution. The most common way to accomplish this is a direct transfer. That is when the qualified plan distributes the retirement assets directly to another qualified plan or traditional IRA.
In this case, the way the IRS knows how the distribution was treated is on your 1099-R: you’ll see your gross distribution in box 1 and the taxable amount in box 2. In the case of a direct transfer, the amount in box 2 would be $0. The important piece of information on the 1099-R is the distribution code in box 7, which for a direct transfer should be either G or H.
If a direct transfer is not made, and the recipient receives the distribution and then transfers the funds to an eligible plan within 60 days, the payor of the distribution is required to withhold 20 percent of the distribution. In this scenario, on your 1099-R you’ll see your gross distribution and taxable amount in box 1 and box 2. You’ll see the 20 percent federal withholdings in box 4. The distribution code for this situation will show an early distribution code (if you do not qualify for an eligible distribution) of usually 1 or 2, but it depends on the type of qualified retirement plan.
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Answered by: Richard L. Ward, CPA, is president and CEO of Capital Configuration LLC in Pittsburgh, Pa.