Remember that retirement account withdrawal you made last year? If not, you'll get a reminder when you receive Form 1099-R. Your plan trustee or custodian sends this information return to you and to the IRS to report distributions you received from pensions, annuities, IRAs, profit-sharing, and other retirement plans.
Form 1099-R looks simple. But do the numbers on the form tell the whole story? While the reported distributions are generally taxable, in some cases the amount shown and the amount you'll pay tax on will differ.
For instance, say you took money from a traditional IRA in which you have basis. This could happen if you were unable to deduct your entire contribution in the year you made it. In this situation, the taxable portion of your withdrawal will be less than the gross distribution reported on Form 1099-R. You account for the difference on "Form 8606, Nondeductible IRAs."
Qualified charitable contributions transferred directly from your IRA to the charity of your choice also reduce the taxable amount of the distribution shown on Form 1099-R. In this case, you indicate the reason for the difference on the first page of your federal income tax return, Form 1040, with the notation "QCD."
Did you roll part or all of the distribution from one IRA into another qualified IRA? As long as you made only one transfer during the past twelve months, and did so within a 60-day time period, the amount you rolled over is generally tax-free. If you qualify for this exception, enter "Rollover" beside the line where you report the amount on page one of Form 1040.
Please get in touch with us for more information. We'll be happy to explain the tax treatment of IRA and other retirement account withdrawals.
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