This discussion is relevant to those of you who receieved a 1099-R without making a distribution and/or anyone who rolled
over funds from a 401k to an IRA. This post is designed to help you learn about
how 1099-R and 5498 forms.
There are several reasons why people receive 1099-Rs. You
will receive a 1099-R if you:
-
Take a distribution from a retirement account.
-
Make a conversion of a Traditional IRA to a Roth
IRA.
-
Devalue an asset to zero.
-
Roll funds over from a 401k to an IRA or other
retirement plan.
-
Roll funds over from an IRA to an HSA.
Depending on the reason you receive a 1099-R, you may or may
not have tax consequences (see the discussion of the 5498 form below), but it
is still good to understand the form and why you received it.
If you did one of the first two items on the above list,
your reported income will increase by the amount on the 1099-R form. If your
asset was devalued to zero, you essentially are paying tax on a distribution
that has zero value. Tax on something worth nothing is also equal to nothing.
If you received the 1099-R form for one of the last 2
reasons listed above, another reporting form becomes relevant, form 5498 which
is also filed with the IRS by New Direction IRA as part of our annual IRS
reporting. The 5498 will reflect the results of any rollovers you made to
accounts held by us.
For example, if you rolled funds from an IRA to an HSA, the
5498 will reflect that the amount reported on the 1099-R was rolled over into
an HSA and not received by you personally (the IRS only allows that once in
your lifetime). The same is true if you rolled funds over to an IRA from a 401k
plan. The net result is that the 5498 will indicate that the amount reported on
the 1099-R did not result in increased income for the current tax year.
Your first statement of the year serves as your substitute
form 5498. You can reference this form for your records. As long as the amounts
on the 1099-R match the amount listed as the rollover which funded your account
on your statement from us, the net resulting tax is zero. Keep your statement
(substitute 5498) and the 1099-R form with your tax files for documentation.
