2007 Instructions for Forms 1099-R and 5498

Transcription

1 2007 Instructions for Forms 1099-R and 5498 Section references are to the Internal Revenue Code unless otherwise noted. What s New Form 1099-R Certain qualified distributions. A TIP has been added on page R-1 to indicate that there is no special reporting for qualified charitable distributions, qualified HSA distributions, or payments of qualified health and long-term care insurance premiums for retired public safety officers. Recipients of these distributions claim the associated tax benefits on their own income tax returns. However, trustees and issuers may use Distribution Code 2 to indicate an exception to the additional tax on early distributions for payments of qualified health and long-term care insurance premiums for retired public safety officers. See the Guide to Distribution Codes on page R-11. Nonspouse designated beneficiaries. Notice provides guidance on provisions in the Pension Protection Act of 2006 regarding the tax treatment of certain distributions to nonspouse designated beneficiaries. See Direct Rollovers on page R-3; Automatic rollovers on page R-3; and the TIP on page R-4 under Explanation to Recipients Before Eligible Rollover Distributions (Section 402(f) Notice). Section 402(f) notice requirements. Guidance is provided under new Regulations section 1.402(f)-1 in meeting the requirements to furnish section 402(f) notices electronically. Also, the Pension Protection Act of 2006 extended the period for providing the notice for certain plans. See Notice , Section VIII, and Explanation to Recipients Before Eligible Rollover Distributions (Section 402(f) Notice) on page R-4. Form 5498 Special catch-up contributions. Information for reporting catch-up contributions under section 219(b)(5)(C) has been added under Special reporting for 2007 on page R-13. Qualified charitable distributions. Notice provides guidance on the treatment of qualified charitable distributions. See the Note on page R-13. Nonspouse designated beneficiaries. Guidance on reporting for IRAs of nonspouse designated beneficiaries has been added to Inherited IRAs on page R-14. Qualified reservist distributions. Reporting instructions have been added on page R-14 under Repayment of qualified reservist distributions. Blank box. Instructions regarding the use of the blank box to the left of box 10 for reporting certain contributions have been added on page R-15. Reminders In addition, see the 2007 General Instructions for Forms 1099, 1098, 5498, and W-2G for information on: Backup withholding Electronic reporting requirements Penalties Who must file (nominee/middleman) When and where to file Taxpayer identification numbers Statements to recipients Corrected and void returns Other general topics Department of the Treasury Internal Revenue Service You can get the general instructions from the IRS website at or call TAX-FORM ( ). Specific Instructions for Form 1099-R File Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., for each person to whom you have made a designated distribution or are treated as having made a distribution of $10 or more from profit-sharing or retirement plans, any IRAs, annuities, pensions, insurance contracts, survivor income benefit plans, permanent and total disability payments under life insurance contracts, charitable gift annuities, etc. Also, report on Form 1099-R death benefit payments made by employers that are not made as part of a pension, profit-sharing, or retirement plan. See box 1 on page R-6. Reportable disability payments made from a retirement plan must be reported on Form 1099-R. Generally, do not report payments subject to withholding of social security and Medicare taxes on this form. Report such payments on Form W-2, Wage and Tax Statement. Generally, do not report amounts totally exempt from tax, such as workers compensation and Department of Veterans Affairs (VA) payments. However, if part of the distribution is taxable and part is nontaxable, report the entire distribution. There is no special reporting for qualified charitable TIP distributions described in section 408(d)(8), for qualified HSA funding distributions described in section 408(d)(9), or for the payment of qualified health and long-term care insurance premiums for retired public safety officers described in section 402(l). Military retirement annuities. Report payments to military retirees or payments of survivor benefit annuities on Form 1099-R. Report military retirement pay awarded as a property settlement to a former spouse under the name and taxpayer identification number (TIN) of the recipient, not that of the military retiree. Governmental section 457(b) plans. Report on Form 1099-R, not Form W-2, income tax withholding and distributions from a governmental section 457(b) plan maintained by a state or local government employer. Distributions from a governmental section 457(b) plan to a participant or beneficiary include all amounts that are paid from the plan. For more information, see Notice which is on page 894 of Internal Revenue Bulletin , available at pdf. Also see Section 457(b) plan distributions on page R-10 for information on distribution codes. Nonqualified plans. Report any reportable distributions from commercial annuities. Report distributions to employee plan participants from section 409A nonqualified deferred compensation plans including nongovernmental section 457(b) plans on Form W-2, not on Form 1099-R; for nonemployees, these payments are reportable on Form 1099-MISC. However, report distributions to beneficiaries of deceased plan participants on Form 1099-R. See box 1 on page R-6. Section 404(k) dividends. Generally, distributions from an employee stock ownership plan (ESOP), including a tax credit ESOP, are reported on Form 1099-DIV, Dividends and Distributions. However, if the distribution is a total distribution and contains section 404(k) dividends, report these dividends on Form 1099-R. Charitable gift annuities. If cash or capital gain property is donated in exchange for a charitable gift annuity, report Cat. No M

2 distributions from the annuity on Form 1099-R. See Charitable gift annuities on page R-7. Life insurance, annuity, and endowment contracts. Report payments of matured or redeemed annuity, endowment, and life insurance contracts. However, you do not need to file Form 1099-R to report the surrender of a life insurance contract if it is reasonable to believe that none of the payment is includible in the income of the recipient. If you are reporting the surrender of a life insurance contract, see Code 7 on page R-11. Also report premiums paid by a trustee or custodian for the cost of current life or other insurance protection. Costs of current life insurance protection are not subject to the 10% additional tax under section 72(t). See Cost of current life insurance protection on page R-7. Section 1035 exchange. A tax-free section 1035 exchange is the exchange of (a) a life insurance contract for another life insurance, endowment, or annuity contract, (b) an endowment contract for an annuity contract or for another endowment contract that provides for regular payments to begin no later than they would have begun under the old contract, and (c) an annuity contract for another annuity contract. However, the distribution of other property or the cancellation of a contract loan at the time of the exchange may be taxable and reportable on a separate Form 1099-R. These exchanges of contracts are generally reportable on Form 1099-R. However, reporting on Form 1099-R is not required if (a) the exchange occurs within the same company, (b) the exchange is solely a contract for contract exchange, as defined above, that does not result in a designated distribution, and (c) the company maintains adequate records of the policyholder s basis in the contracts. For example, a life insurance contract issued by Company X received in exchange solely for another life insurance contract previously issued by Company X does not have to be reported on Form 1099-R as long as the company maintains the required records. See Rev. Proc , C.B. 744, and Rev. Rul available in Internal Revenue Bulletin at irs-irbs/irb07-21.pdf. For more information on reporting taxable exchanges, see box 1 on page R-6. Designated Roth Account Distributions An employer offering a section 401(k) or 403(b) plan may allow participants to contribute all or a portion of the elective deferrals they are otherwise eligible to make to a separate designated Roth account established under the plan. Contributions made under a 401(k) plan must meet the requirements of Regulations section 1.401(k)-1(f) (Proposed Regulations section 1.403(b)-3(c) for a section 403(b) plan). Under the terms of the 401(k) plan or section 403(b) plan the designated Roth account must meet the requirements of section 402A.! CAUTION A separate Form 1099-R must be used to report a distribution from a designated Roth account. IRA Distributions For deemed IRAs under section 408(q), use the rules TIP that apply to traditional IRAs or Roth IRAs as applicable. SEP IRAs and SIMPLE IRAs, however, may not be used as deemed IRAs. Deemed IRAs. A qualified employer plan may allow employees to make voluntary employee contributions to a separate account or annuity established under the plan. Under the terms of the qualified employer plan, the account or annuity must meet the applicable requirements of section 408 or 408A for a traditional IRA or Roth IRA. Under section 408(q), the deemed IRA portion of the qualified employer plan is subject to the rules applicable to traditional and Roth IRAs, and not to those of the applicable plan under section 401(a), 403(a), 403(b), or 457. Accordingly, the reporting and withholding rules on plan and IRA distributions apply separately depending on whether the distributions are made from the deemed IRA or the qualified employer plan. For example, the reporting rules for required minimum distributions apply separately for the two portions of the plan. A total distribution of amounts held in the qualified R-2 employer plan portion and the deemed IRA portion is reported on two separate Forms 1099-R one for the distribution from the deemed IRA portion and one for the rest of the distribution. Also, the 20% withholding rules of section 3405(c) do not apply to a distribution from the deemed IRA portion but would apply to a distribution from the qualified employer plan portion, and section 72(t) applies separately to the two portions. IRAs other than Roth IRAs. Distributions from any individual retirement arrangement (IRA), except a Roth IRA, must be reported in boxes 1 and 2a regardless of the amount. You may check the Taxable amount not determined box in box 2b. But see the instructions for box 2a on page R-7 for how to report the withdrawal of IRA contributions under section 408(d)(4). Also see Transfers on page R-4 for information on trustee-to-trustee transfers, including recharacterizations. The direct rollover provisions on page R-3 do not apply to distributions from any IRA. However, taxable distributions from traditional IRAs and SEP IRAs may be rolled over into an eligible retirement plan. See section 408(d)(3). SIMPLE IRAs may also be rolled over into an eligible retirement plan, but only after the 2-year period described in section 72(t)(6). An IRA includes all investments under one IRA plan or account. File only one Form 1099-R for distributions from all investments under one plan that are paid in 1 year to one recipient, unless you must enter different codes in box 7. You do not have to file a separate Form 1099-R for each distribution under the plan. Roth IRAs. For distributions from a Roth IRA, report the gross distribution in box 1 but generally leave box 2a blank. Check the Taxable amount not determined box in box 2b. Enter Code J, Q, or T as appropriate in box 7. Do not use any other codes with Code Q or Code T. You may enter Code 8 or P with Code J. For the withdrawal of excess contributions, see box 2a on page R-7. It is not necessary to mark the IRA/SEP/SIMPLE checkbox. Roth IRA conversions. You must report an IRA that is converted or reconverted this year to a Roth IRA in boxes 1 and 2a, even if the conversion is a trustee-to-trustee transfer or is with the same trustee. Enter Code 2 or 7 in box 7 depending on the participant s age. Conduit IRAs. If you know the distribution is from a conduit IRA, follow these rules. If a distribution from a conduit IRA is paid to the participant, report the full amount in boxes 1 and 2a, and use Code 1 or 7 in box 7 depending on the participant s age. If a distribution from a conduit IRA is paid to the trustee of, or is transferred to, an employer plan, report the distribution in box 1, enter 0 (zero) in box 2a, and use Code G in box 7. IRA Revocation or Account Closure If a traditional or Roth IRA is revoked during its first 7 days (under Regulations section (d)(4)(ii)) or is closed at any time by the IRA trustee or custodian due to a failure of the taxpayer to satisfy the Customer Identification Program requirements described in section 326 of the U.S. Patriot Act, the distribution from the IRA must be reported. In addition, Form 5498, IRA Contribution Information, must be filed to report any regular, rollover, Roth IRA conversion, SEP IRA, or SIMPLE IRA contribution to an IRA that is subsequently revoked or closed by the trustee or custodian. If a regular contribution is made to a traditional or Roth IRA that later is revoked or closed, and distribution is made to the taxpayer, enter the gross distribution in box 1. If no earnings are distributed, enter 0 (zero) in box 2a and Code 8 in box 7 for a traditional IRA and Code J for a Roth IRA. If earnings are distributed, enter the amount of earnings in box 2a. For a traditional IRA, enter Code 1 and 8, if applicable, in box 7; for a Roth IRA, enter Codes J and 8, if applicable. These earnings could be subject to the 10% early distribution tax under section 72(t). If a rollover contribution is made to a traditional or Roth IRA that later is revoked or closed, and distribution is made to the taxpayer, enter in boxes 1 and 2a of Form 1099-R the gross distribution and the appropriate code in box 7 (Code J for a Roth IRA). Follow this same procedure for a transfer from a traditional or Roth IRA to another IRA of the same type that later is revoked or closed. The distribution could be subject to the 10% early distribution tax under section 72(t). If an IRA conversion contribution is made to a Roth IRA that later is revoked or closed, and a distribution is made to the

3 taxpayer, enter the gross distribution in box 1 of Form 1099-R. Amounts paid under an annuity contract purchased for and If no earnings are distributed, enter 0 (zero) in box 2a and Code distributed to a participant under a qualified plan can qualify as J in box 7. If earnings are distributed, enter the amount of the eligible rollover distributions. See Regulations section earnings in box 2a and Code J in box 7. These earnings could 1.402(c)-2, Q/A-10. be subject to the 10% early distribution tax under section 72(t). Automatic rollovers. Eligible rollover distributions may also If an employer SEP (simplified employee pension) IRA or include involuntary distributions that are more than $1,000 but SIMPLE (savings incentive match plan for employees) IRA plan $5,000 or less and are made from a qualified plan to an IRA on contribution is made and the SEP IRA or SIMPLE IRA is behalf of a plan participant. Involuntary distributions made on or revoked by the employee or is closed by the trustee or after March 28, 2005, are generally subject to the automatic custodian, report the distribution as fully taxable. rollover provisions of section 401(a)(31)(B) and must be paid in a direct rollover to an IRA. For more information on IRAs that have been revoked, see Rev. Proc , C.B For information on the notification requirements, see Explanation to Recipients Before Eligible Rollover Distributions Deductible Voluntary Employee Contributions (Section 402(f) Notice) on page R-4. For additional information, (DECs) also see Notice which is available on page 337 of Internal Revenue Bulletin at If you are reporting a total distribution from a plan that includes irb05-03.pdf. a distribution of DECs, file a separate Form 1099-R to report the distribution of DECs. Report the distribution of DECs in Any part of an eligible rollover distribution that is not a direct boxes 1 and 2a on the separate Form 1099-R. However, for the rollover is subject to 20% income tax withholding. See box 4 on direct rollover (explained below) of funds that include DECs, a page R-8. separate Form 1099-R is not required to report the direct Reporting a direct rollover. Report a direct rollover in box 1 rollover of the DECs. and a 0 (zero) in box 2a. You do not have to report capital gain in box 3 or NUA in box 6. Enter Code G in box 7. Prepare the Direct Rollovers form using the name and social security number (SSN) of the You must report a direct rollover of an eligible rollover person for whose benefit the funds were rolled over (generally distribution. A direct rollover is the direct payment of the the participant), not those of the trustee of the traditional IRA or distribution from a qualified plan (including a governmental other plan to which the funds were rolled. section 457(b) plan) or section 403(b) plan to a traditional IRA or other eligible retirement plan. For additional rules regarding If you receive a direct rollover to an IRA, you must prepare the treatment of direct rollovers from designated Roth accounts, Form If you receive a direct rollover to a qualified plan see Designated Roth accounts below. A direct rollover may be (including a governmental section 457(b) plan) or section made for the employee, for the employee s surviving spouse, 403(b) plan, no report is required. for the spouse or former spouse who is an alternate payee If part of the distribution is a direct rollover and part is under a qualified domestic relations order (QDRO) or for a distributed to the recipient, prepare two Forms 1099-R. nonspouse designated beneficiary, in which case the direct rollover can only be made to an IRA. If the distribution is paid to For more information on eligible rollover distributions, the surviving spouse, the distribution is treated in the same including substantially equal periodic payments, required manner as if the spouse were the employee. See Notice minimum distributions, and plan loan offset amounts, see which is on page 395 of Internal Revenue Bulletin at Regulations sections 1.402(c)-2 and 1.403(b)-2. Also, see Rev. for guidance on direct Rul which is on page 710 of Internal Revenue Bulletin rollovers by nonspouse designated beneficiaries at for guidance on substantially equal periodic payments that began after An eligible rollover distribution is any distribution of all or any December 31, portion of the balance to the credit of the employee (including net unrealized appreciation (NUA)) from a qualified plan For information on distributions of amounts attributable (including a governmental section 457(b) plan) or a section TIP to rollover contributions separately accounted for by an 403(b) plan except: eligible retirement plan and if permissible timing restrictions apply, see Rev. Rul which is on page One of a series of substantially equal periodic payments of Internal Revenue Bulletin , available at made at least annually over: pub/irs-irbs/irb04-07.pdf. a. The life of the employee or the joint lives of the employee and the employee s designated beneficiary, Designated Roth accounts. A direct rollover from a b. The life expectancy of the employee or the joint life and designated Roth account under a qualified cash or deferred last survivor expectancy of the employee and the employee s arrangement may only be made to another designated Roth designated beneficiary, or account under an applicable retirement plan described in c. A specified period of 10 years or more. section 402A(e)(1) or to a Roth IRA described in section 408A, 2. A required minimum distribution (under section and only to the extent the direct rollover is permitted under the 401(a)(9)). A plan administrator is permitted to assume there is rules of section 402(c). A distribution from a Roth IRA, however, no designated beneficiary for purposes of determining the cannot be rolled over into a designated Roth account. In minimum distribution. addition, a plan is permitted to treat the balance of the 3. Elective deferrals (under section 402(g)(3)), employee participant s designated Roth account and the participant s contributions, and earnings on each returned because of the other accounts under the plan as accounts held under two section 415 limits. separate plans for purposes of applying the automatic rollover 4. Corrective distributions of excess deferrals (under section rules of section 401(a)(31)(B) and Q/A-9 through Q/A-11 of 402(g)) and earnings. Regulations section 1.401(a)(31)-1. Thus, if a participant s 5. Corrective distributions of excess contributions under a balance in the designated Roth account is less than $200, the qualified cash or deferred arrangement (under section 401(k)) plan is not required to offer a direct rollover election or to apply and excess aggregate contributions (under section 401(m)) the automatic rollover provisions to such balance. and earnings. When the portion of the distribution from a designated Roth 6. Loans treated as deemed distributions (under section account that is not includible in gross income is to be rolled over 72(p)). But plan loan offset amounts can be eligible rollover into a designated Roth account under another plan, the rollover distributions. See Regulations section 1.402(c)-2, Q/A-9. must be accomplished by a direct rollover. Any portion not 7. Section 404(k) dividends. includible in gross income that is distributed to the employee, 8. Cost of current life insurance protection. however, cannot be rolled over to another designated Roth 9. Distributions to a payee other than the employee, the account. In the case of a direct rollover, the distributing plan is employee s surviving spouse, a spouse or former spouse who required to report to the recipient plan the amount of the is an alternate payee under a QDRO. investment (basis) in the contract and the first year of the 10. Any hardship distribution. 5-taxable-year period. R-3

4 Explanation to Recipients Before Eligible another trustee. The trustee of the first IRA must report the Rollover Distributions (Section 402(f) Notice) recharacterization as a distribution on Form 1099-R and the contribution to the first IRA and its character on Form The requirements of section 402(f) do not apply to direct Enter the fair market value (FMV) of the amount TIP rollovers by nonspouse designated beneficiaries. recharacterized in box 1, 0 (zero) in box 2a, and Code R in box 7 if reporting a recharacterization of a prior-year (2006) contribution or Code N if reporting a recharacterization of a For qualified plans, section 403(b) plans, and governmental contribution in the same year (2007). It is not necessary to section 457(b) plans, the plan administrator must provide to check the IRA/SEP/SIMPLE checkbox. For more information, each recipient of an eligible rollover distribution an explanation see Notice on page 1266 of Internal Revenue Bulletin using either a written paper document or an electronic medium at (section 402(f) notice). The explanation must be provided no more than 90 days (as much as 180 days for plan years that Roth IRA conversions. A Roth IRA conversion is not begin after December 31, 2006) and no fewer than 30 days considered a trustee-to-trustee transfer. You must report a before making an eligible rollover distribution or before the Roth IRA conversion or reconversion as a distribution. annuity starting date. However, if the recipient who has Therefore, for an IRA that is converted to a Roth IRA, even with received the section 402(f) notice affirmatively elects a the same trustee, you must report the amount converted in distribution, you will not fail to satisfy the timing requirements boxes 1 and 2a. Use Code 2 or 7 in box 7 depending on the merely because you make the distribution fewer than 30 days participant s age. after you provided the notice as long as you meet the SIMPLE IRAs. Do not report a trustee-to-trustee transfer from requirements of Regulations section 1.402(f)-1, Q/A-2. The one SIMPLE IRA to another SIMPLE IRA. However, you must electronic section 402(f) notice must meet the consumer report as a taxable distribution in boxes 1 and 2a a consent requirements as provided in Regulations section trustee-to-trustee transfer from a SIMPLE IRA to an IRA that is 1.401(a)-21(b). not a SIMPLE IRA during the 2-year period beginning on the The notice must explain the rollover rules, the special tax day contributions are first deposited in the individual s SIMPLE treatment for lump-sum distributions, the direct rollover option IRA by the employer. Use Code S in box 7 if appropriate. (and any default procedures), the mandatory 20% withholding Section 1035 exchange. You may have to report exchanges rules, and an explanation of how distributions from the plan to of insurance contracts, including an exchange under section which the rollover is made may have different restrictions and 1035, under which any designated distribution may be made. tax consequences than the plan from which the rollover is For a section 1035 exchange that is in part taxable, file a made. The notice and summary are permitted to be sent either separate Form 1099-R to report the taxable amount. See as a written paper document or through an electronic medium Section 1035 exchange on page R-2. reasonably accessible to the recipient; see Regulations section Transfer of an IRA to spouse. If you transfer or re-designate 1.402(f)-1, Q/A-5. an interest from one spouse s IRA to an IRA for the other For periodic payments that are eligible rollover distributions, spouse under a divorce or separation instrument, the transfer or you must provide the notice before the first payment and at re-designation as provided under section 408(d)(6) is tax free. least once a year as long as the payments continue. For section Do not report such a transfer on Form 1099-R. 403(b) plans, the payer must provide an explanation of the Corrective Distributions direct rollover option within the time period described above or some other reasonable period of time. You must report on Form 1099-R corrective distributions of excess deferrals, excess contributions and excess aggregate Notice , which is on page 289 of Internal Revenue contributions under section 401(a) plans, section 401(k) cash or Bulletin and available at deferred arrangements, section 403(a) annuity plans, section irb02-02.pdf, contains model notices that the plan administrator 403(b) salary reduction agreements, and salary reduction can use to satisfy the notice requirements. simplified employee pensions (SARSEPs) under section Notice has not yet been updated for 408(k)(6). Excess contributions that are recharacterized under a requirements related to plans that accept designated section 401(k) plan are treated as distributed. Corrective! Roth account contributions. For distributions from distributions of an excess plus earnings are reportable on Form CAUTION designated Roth accounts, the section 402(f) notice must 1099-R for the year of the distribution regardless of when the contain the rollover and taxation rules for the distribution of distribution is taxable to the participant. Enter Code 8, P, or in designated Roth contributions. some cases D, in box 7 (with Code B if applicable) to designate the distribution and the year it is taxable. The notice also has not yet been updated for the requirements of the Pension Protection Act of Use a separate Form 1099-R to report a corrective distribution from a designated Roth account. Involuntary distributions. For involuntary distributions paid to an IRA in a direct rollover (automatic rollover) you may satisfy The total amount of the elective deferral is reported in the notification requirements of section 401(a)(31)(B)(i) either TIP box 12 of Form W-2. See the Instructions for Forms W-2 separately or as a part of the section 402(f) notice. The and W-3 for more information. notification must be in writing and may be sent using electronic If the excess and the earnings are taxable in 2 different media in accordance with Q/A-5 of Regulations section years, you must issue two Forms 1099-R to designate the year 1.402(f)-1. For more information, see Notice , Q/A-15. each is taxable. Transfers You must advise the plan participant at the time of the Generally, do not report transfers between trustees or issuers distribution of the year(s) in which the distribution is taxable and (unless they are direct rollovers from qualified plans) that that it may be necessary to file an amended return for a prior involve no payment or distribution of funds to the participant, tax year. including a trustee-to-trustee transfer from one IRA to another For more information about reporting corrective distributions (unless they are recharacterized IRA contributions or Roth IRA see: the Guide to Distribution Codes on pages R-11 and R-12; conversions), from one section 403(b) plan to another, or for the Notice 89-32, C.B. 671; Notice 88-33, C.B. 513; purchase of permissive service credit under section 403(b)(13) Notice 87-77, C.B. 385; Rev. Proc , C.B. or 457(e)(17). 733 (SARSEPs); and the Regulations under sections 401(k), IRA recharacterizations. You must report each 401(m), 402(g), and 457. recharacterization of an IRA contribution. If a participant makes Excess deferrals. Excess deferrals under section 402(g) can a contribution to an IRA (first IRA) for a year, the participant occur in 401(k) plans or section 403(b) plans or SARSEPs. If may choose to recharacterize the contribution by transferring, in distributed by April 15 of the year following the year of deferral, a trustee-to-trustee transfer, any part of the contribution (plus the excess is taxable to the participant in the year of deferral, earnings) to another IRA (second IRA). The contribution is but the earnings are taxable in the year distributed. Except for a treated as made to the second IRA (recharacterization). A SARSEP, if the distribution occurs after April 15, the excess is recharacterization may be made with the same trustee or with taxable in the year of deferral and the year distributed. The R-4

5 earnings are taxable in the year distributed. For a SARSEP, Such distributions are not eligible rollover distributions excess deferrals not withdrawn by April 15 are considered although they are subject to federal income tax withholding regular IRA contributions subject to the IRA contribution limits. under section They are not subject to social security, Corrective distributions of excess deferrals are not subject to Medicare, or Federal Unemployment Tax Act (FUTA) taxes. In federal income tax withholding or social security and Medicare addition, such distributions are not subject to the 10% early taxes. For losses on excess deferrals, see Losses below. See distribution tax under section 72(t). the regulations under section 457 for special rules for excess You may report the distribution of elective deferrals (other deferrals under governmental section 457(b) plans. than designated Roth account contributions) and employee Excess contributions. Excess contributions can occur in a contributions (and gains attributable to such elective deferrals 401(k) plan or a SARSEP. For a 401(k) plan, if the withdrawal and employee contributions) on the same Form 1099-R. of the excess plus earnings occurs within 2 1 /2 months after the However, if you made other distributions during the year, report close of the plan year, the excess and earnings are taxable to them on a separate Form 1099-R. Because the distribution of the participant in the year deferred. But if the corrective elective deferrals (other than designated Roth account distribution is made after the 2 1 /2-month period, or the excess contributions) is fully taxable in the year distributed (no part of contribution (not including earnings) (and excess aggregate the distribution is a return of the investment in the contract), contributions (not including earnings) in the case of a 401(k) report the total amount of the distribution in boxes 1 and 2a. plan) is less than $100, the excess (other than designated Roth Leave box 5 blank, and enter Code E in box 7. For a return of account contributions) and earnings are taxable in the year employee contributions (or designated Roth account distributed. For recharacterized excess contributions, the contributions) plus gains, enter the gross distribution in box 1, excess is taxable in the year a corrective distribution would the gains attributable to the employee contributions (or have occurred. No earnings are allocated to recharacterized designated Roth account contributions) being returned in box amounts. For a SARSEP, the employer must notify the 2a, and the employee contributions (or designated Roth participant by March 15 of the year after the year the excess account contributions) being returned in box 5. Enter Code E in contribution was made that the participant must withdraw the box 7. For more information, see Rev. Proc , excess and earnings. The excess contribution is taxable to the C.B participant in the year of deferral and the earnings are taxable New regulations under section 415, effective for limitation in the year withdrawn. If the excess contribution (not including years beginning after June 30, 2007, do not contain procedures earnings) is less than $100, the excess is taxable in the year of for reducing excess annual additions. However, the correction notification and the earnings are taxable in the year withdrawn. and reporting procedures explained earlier can be used for An excess contribution not withdrawn by April 15 of the year correcting excess annual additions in 2007 under the Employee after the year of notification is considered a regular IRA Plans Compliance Resolution System (EPCRS), as explained in contribution subject to the IRA contribution limits. Rev. Proc For additional information, see Rev. Proc. Excess contributions distributed within the 2 1 /2-month period which is available on page 945 of Internal Revenue are not subject to federal income tax withholding or social Bulletin at security and Medicare taxes. But amounts distributed from a 401(k) plan after the 2 Certain Excess Amounts Under Section 403(b) /2-month period are subject to federal income tax withholding under section Plans Excess aggregate contributions. Excess aggregate A corrective distribution under the EPCRS to the participant of contributions under section 401(m) can occur in 401(a), 401(k), contributions to a section 403(b) plan (plus gains attributable to 403(a), and section 403(b) plans. A corrective distribution of such contributions) that were in excess of the limits under excess aggregate contributions plus earnings within 2 1 /2 months section 415 is treated the same as corrective distributions of after the close of the plan year is taxable to the participant in elective deferrals to satisfy the limits under section 415. It is the year the contributions were made. A corrective distribution taxable to the participant in the year of distribution. See Excess made after the 2 1 /2-month period is taxable in the year Annual Additions Under Section 415 above. distributed. Report the gross distribution in box 1 of Form Failing the ADP or ACP Test After a Total 1099-R. In box 2a, enter the excess and earnings distributed less any after-tax contributions. If the total excess contributions Distribution and excess aggregate contributions distributed are less than If you make a total distribution in 2007 and file a Form 1099-R $100 (excluding earnings), the distribution is taxable in the year with the IRS and then discover in 2008 that the plan failed of distribution. either the section 401(k)(3) actual deferral percentage (ADP) test for 2007 and you compute excess contributions or the A distribution made within 2 1 /2 months after the close of the section 401(m)(2) actual contribution percentage (ACP) test plan year is not subject to federal income tax withholding or and you compute excess aggregate contributions, you must social security and Medicare taxes. But amounts distributed recharacterize part of the total distribution as excess after 2 1 /2 months are subject to federal income tax withholding contributions or excess aggregate contributions. First, file a under section CORRECTED Form 1099-R for 2007 for the correct amount of Losses. If a corrective distribution of an excess deferral is the total distribution (not including the amount recharacterized made in a year after the year of deferral and a net loss has as excess contributions or excess aggregate contributions). been allocated to the excess deferral, report the corrective Second, file a new Form 1099-R for 2007 for the excess distribution amount in boxes 1 and 2a of Form 1099-R for the contributions or excess aggregate contributions and allocable year of the distribution with the appropriate distribution code in earnings. box 7. If the excess deferrals consist of designated Roth To avoid a late filing penalty if the new Form 1099-R is filed account contributions, report the corrective distribution amount after the due date, enter in the bottom margin of Form 1096, in box 1, 0 (zero) in box 2a, and the appropriate distribution Annual Summary and Transmittal of U.S. Information Returns, code in box 7. However, taxpayers must include the total the words Filed To Correct Excess Contributions. amount of the excess deferral (unadjusted for loss) in income in the year of deferral, and they may report a loss on the tax return You must also issue copies of the Forms 1099-R to the plan for the year the corrective distribution is made. participant with an explanation of why these new forms are being issued. Excess Annual Additions Under Section 415 You must report on Form 1099-R distributions made under Loans Treated as Distributions Regulations section (b)(6)(iv) of elective deferrals or a A loan from a qualified plan under sections 401(a) and 403(a) return of employee contributions (and gains attributable to such and (b), and a plan maintained by the United States, a state or elective deferrals or employee contributions) to reduce excess political subdivision, or any of its subsidiary agencies made to a annual additions arising from the allocation of forfeitures, a participant or beneficiary is not treated as a distribution from the reasonable error in estimating a participant s compensation, or plan if the loan satisfies the following requirements. a reasonable error in determining the amount of elective 1. The loan is evidenced by an enforceable agreement, deferrals that may be made for an individual under the limits of 2. The agreement specifies that the loan must be repaid section 415. within 5 years, except for a principal residence, R-5

6 3. The loan must be repaid in substantially level installments Filer (at least quarterly), and The payer, trustee, or plan administrator must file Form 1099-R 4. The loan amount does not exceed the limits in section using the same name and employer identification number (EIN) 72(p)(2)(A) (maximum limit is equal to the lesser of 50% of the used to deposit any tax withheld and to file Form 945, Annual vested account balance or $50,000). Return of Withheld Federal Income Tax. Certain exceptions, cure periods, and suspension of the Beneficiaries repayment schedule may apply. If you make a distribution to a beneficiary, trust, or estate, The loan agreement must specify the amount of the loan, the prepare Form 1099-R using the name and TIN of the term of the loan, and the repayment schedule. The agreement beneficiary, trust, or estate, not that of the decedent. If there are may include more than one document. multiple beneficiaries, report on each Form 1099-R only the If a loan fails to satisfy 1, 2, or 3, the balance of the loan is a amount paid to the beneficiary whose name appears on the deemed distribution. The distribution may occur at the time the Form 1099-R, and enter the percentage in box 9a, if applicable. loan is made or later if the loan is not repaid in accordance with Disclaimers. A beneficiary may make a qualified disclaimer of the repayment schedule. all or some of an IRA account balance if the disclaimed amount and income are paid to a new beneficiary or segregated in a If a loan fails to satisfy 4 at the time the loan is made, the separate account. A qualified disclaimer may be made after the amount that exceeds the amount permitted to be loaned is a beneficiary has previously received the required minimum deemed distribution. distribution for the year of the decedent s death. For more Deemed distribution. If a loan is treated as a deemed information, see Revenue Ruling , which is on page distribution, it is reportable on Form 1099-R using the normal 1368 of Internal Revenue Bulletin available at taxation rules of section 72, including tax basis rules. The gov/pub/irs-irbs/irb05-36.pdf. distribution also may be subject to the 10% early distribution tax under section 72(t). It is not eligible to be rolled over to an Alternate Payee Under a Qualified Domestic eligible retirement plan nor is it eligible for the 10-year tax Relations Order (QDRO) option. On Form 1099-R, complete the appropriate boxes, Distributions to an alternate payee who is a spouse or former including boxes 1 and 2a, and enter Code L in box 7. Also, spouse of the employee under a QDRO are reportable on Form enter Code 1 or Code B, if applicable R using the name and TIN of the alternate payee. If the Interest that accrues after the deemed distribution of a loan alternate payee under a QDRO is a nonspouse, enter the name is not an additional loan, and, therefore, is not reportable on and TIN of the employee. However, this rule does not apply to Form 1099-R. IRAs; see Transfer of an IRA to spouse on page R-4. Loans that are treated as deemed distributions or that are Nonresident Aliens actual distributions are subject to federal income tax If income tax is withheld under section 3405 on any distribution withholding. If a distribution occurs after the loan is made, you to a nonresident alien, report the distribution and withholding on must withhold only if you distributed cash or property (other Form 1099-R. Also file Form 945 to report the withholding. See than employer securities) at the time of the deemed or actual the Presumption Rules in part S of the 2007 General distribution. See section 72(p), 72(e)(4)(A), and Regulations Instructions for Forms 1099, 1098, 5498, and W-2G. section 1.72(p)-1. However, any payments to a nonresident alien from any trust Subsequent repayments. If a participant makes any cash under section 401(a), any annuity plan under section 403(a), repayments on a loan that was reported on Form 1099-R as a any annuity, custodial account, or retirement income account deemed distribution, the repayments increase the participant s under section 403(b), or any IRA account under section 408(a) tax basis in the plan as if the repayments were after-tax or (b) are subject to withholding under section Report the contributions. However, such repayments are not treated as distribution and withholding on Form 1042, Annual Withholding after-tax contributions for purposes of section 401(m) Tax Return for U.S. Source Income of Foreign Persons, and or 415(c)(2)(B). Form 1042-S, Foreign Person s U.S. Source Income Subject For a deemed distribution that was reported on Form 1099-R to Withholding. but was not repaid, the deemed distribution does not increase Statements to Recipients the participant s basis. If you are required to file Form 1099-R, you must furnish a If a participant s accrued benefit is reduced (offset) to repay statement to the recipient. For more information about the a loan, the amount of the account balance that is offset against requirement to furnish a statement to each recipient, see part M the loan is an actual distribution. Report it as you would any in the 2007 General Instructions for Forms 1099, 1098, 5498, other actual distribution. Do not enter Code L in box 7. and W-2G. Missing Participants Do not enter a negative amount in any box on The IRS administers a letter-forwarding program that could help TIP Form 1099-R. plan administrators contact missing retirement plan participants (or possibly their beneficiaries). To inform individuals of their rights to benefits under a retirement plan, the IRS will forward Account Number letters from plan administrators to the missing individuals if the The account number is required if you have multiple accounts administrators provide the names and social security numbers for a recipient for whom you are filing more than one Form (SSNs) of the missing individuals. However, the IRS cannot 1099-R. Additionally, the IRS encourages you to designate an disclose individuals addresses or give confirmation of letter account number for all Forms 1099-R that you file. See part L in delivery. All undelivered letters will be destroyed. For further the 2007 General Instructions for Forms 1099, 1098, 5498, information, see Rev. Proc , C.B. 608, or contact and W-2G. your IRS office. Box 1. Gross Distribution Corrected Form 1099-R Enter the total amount of the distribution before income tax or If you filed a Form 1099-R with the IRS and later discover that other deductions were withheld. Include direct rollovers, IRA there is an error on it, you must correct it as soon as possible. rollovers to accepting employer plans, premiums paid by a For example, if you transmit a direct rollover and file a Form trustee or custodian for the cost of current life or other 1099-R with the IRS reporting that none of the direct rollover is insurance protection, and the gross amount of any IRA taxable by entering 0 (zero) in box 2a, and you then discover distribution, including a recharacterization and a Roth IRA that part of the direct rollover consists of required minimum conversion. Also include in this box distributions to plan distributions under section 401(a)(9), you must file a corrected participants from governmental section 457(b) plans. However, Form 1099-R. See part H in the 2007 General Instructions for in the case of a distribution by a trust representing CDs Forms 1099, 1098, 5498, and W-2G or Pub. 1220, if filing redeemed early, report the net amount distributed. Also, see electronically. box 6 on page R-9. R-6

7 Include in this box the value of U.S. Savings Bonds Annuity starting date after November 18, 1996, and before distributed from a plan. Enter the appropriate taxable amount in Under the simplified method for figuring the taxable box 2a. Furnish a statement to the plan participant showing the amount, the expected number of payments is based only on the value of each bond at the time of distribution. This will provide primary annuitant s age on the annuity starting date. See him or her with the information necessary to figure the interest Notice income on each bond when it is redeemed. Annuity starting date before November 19, If you Include in box 1 amounts distributed from a qualified properly used the rules in effect before November 19, 1996, for retirement plan for which the recipient elects to pay health annuities that started before that date, continue to report using insurance premiums under a cafeteria plan or that are paid those rules. No changes are necessary. directly to reimburse medical care expenses incurred by the Designated Roth account. Generally, a distribution from a recipient (see Rev. Rul , I.R.B. 1034). Also designated Roth account that is not a qualified distribution (as include this amount in box 2a. defined in section 402A and its regulations) is taxable to the In addition to reporting distributions to beneficiaries of recipient under section 402 in the case of a plan qualified under deceased employees, report here any death benefit payments section 401(a) and under section 403(b)(1) in the case of a made by employers that are not made as part of a pension, section 403(b) plan. For purposes of section 72, designated profit-sharing, or retirement plan. Also enter these amounts in Roth contributions are treated as employer contributions as box 2a; enter Code 4 in box 7. described in section 72(f)(1) (that is, as includible in the participant s gross income). Do not report accelerated death benefits on Form Example. Participant A received a nonqualified distribution! 1099-R. Report them on Form 1099-LTC, Long-Term of $5,000 from the participant s designated Roth account. Prior CAUTION Care and Accelerated Death Benefits. to the distribution, the participant s account balance was For section 1035 exchanges that are reportable on Form $10,000, consisting of $9,400 of designated Roth contributions 1099-R, enter the total value of the contract in box 1, 0 (zero) in and $600 of earnings. The taxable amount of the $5,000 box 2a, the total premiums paid in box 5, and Code 6 in box 7. distribution is $300 ($600/$10,000 x $5,000). The nontaxable portion of the distribution is $4,700 ($9,400/$10,000 x $5,000). Designated Roth account distributions. If you are making a The issuer would report on Form 1099-R: distribution from a designated Roth account, enter the gross Box 1, $5,000 as the gross distribution; distribution in box 1, the taxable portion of the distribution in box Box 2a, $300 as the taxable amount; 2a, the basis included in the distributed amount in box 5, and Box 5, $4,700 as the designated Roth contribution basis the first year of the 5-taxable-year period in the box to the left of (nontaxable amount); and box 10. Also, enter the applicable code(s) in box 7. The first year of the 5-taxable-year period in the box to the Employer securities and other property. If you distribute left of box 10. employer securities or other property, include in box 1 the FMV Traditional IRA or SEP IRA. Generally, you are not required of the securities or other property on the date of distribution. If to compute the taxable amount of a traditional IRA or SEP IRA there is a loss, see Losses on page R-8. nor designate whether any part of a distribution is a return of If you are distributing worthless property only, you are not basis attributable to nondeductible contributions. Therefore, required to file Form 1099-R. However, you may file and enter 0 report the total amount distributed from a traditional IRA or SEP (zero) in boxes 1 and 2a and any after-tax employee IRA in box 2a. This will be the same amount reported in box 1. contributions or designated Roth contributions in box 5. Check the Taxable amount not determined box in box 2b. Charitable gift annuities. If cash or capital gain property is However, for a distribution by a trust representing CDs donated in exchange for a charitable gift annuity, report the total redeemed early, report the net amount distributed. Do not amount distributed during the year in box 1. See Charitable gift include any amount paid for IRA insurance protection in annuities under box 3 on page R-8. this box. For a distribution of contributions plus earnings from an IRA Box 2a. Taxable Amount before the due date of the return under section 408(d)(4), report Generally, you must enter the taxable amount in box 2a. the gross distribution in box 1, only the earnings in box 2a, and However, if you are unable to reasonably obtain the data enter Code 8 or P, whichever is applicable, in box 7. Enter needed to compute the taxable amount, leave this box blank. Code 1 or 4, if applicable. Do not enter excludable or tax-deferred amounts reportable in For a distribution of excess contributions without earnings boxes 5, 6, and 8. after the due date of the individual s return under section For a direct rollover from a qualified plan (including a 408(d)(5), leave box 2a blank, and check the Taxable amount governmental section 457(b) plan) or section 403(b) plan, for a not determined checkbox in box 2b. Use Code 1 or 7 in box 7 distribution from a conduit IRA that is payable to the trustee of depending on the age of the participant. or is transferred to an employer plan, for an IRA For a traditional IRA and a SEP IRA rolled over to an recharacterization, or for a nontaxable section 1035 exchange accepting employer plan, enter the gross amount in box 1, 0 of life insurance, annuity, or endowment contracts, enter 0 (zero) in box 2a, and Code G in box 7. (zero) in box 2a. SIMPLE IRA. Enter the total amount distributed from a SIMPLE Cost of current life insurance protection. Include current life IRA in box 2a. For a SIMPLE IRA rolled over to an accepting insurance protection costs (net premium costs) that were employer plan after the 2-year period (see section 72(t)(6)), reported in box 1. However, do not report these costs and a enter the gross amount in box 1, 0 (zero) in box 2a, and Code distribution on the same Form 1099-R. Use a separate Form G in box R for each. For the cost of current life insurance Roth IRA. For a distribution from a Roth IRA, report the total protection, enter Code 9 in box 7. distribution in box 1 and leave box 2a blank except in the case DECs. Include DEC distributions in this box. Also see of an IRA revocation or account closure (see page R-2) and a Deductible Voluntary Employee Contributions (DECs) recharacterization (see page R-4). Use Code J, Q, or T as on page R-3. appropriate in box 7. Use Code 8 or P, if applicable, in box 7 with Code J. Do not combine Code Q or T with any other codes. Annuity starting date in 1998 or later. If you made annuity payments from a qualified plan (under section 401(a), 403(a), or However, for the distribution of excess Roth IRA 403(b)) and the annuity starting date is in 1998 or later, you contributions, report the gross distribution in box 1 and only the must use the simplified method (under section 72(d)(1)) to earnings in box 2a. Enter Code J, and Code 8 or P in box 7. figure the taxable amount. Under this method, the expected Roth IRA conversion. Report the total amount converted or number of payments you use to figure the taxable amount reconverted from a traditional IRA, SEP IRA, or SIMPLE IRA to depends on whether the payments are based on the life of one a Roth IRA in boxes 1 and 2a. A conversion or reconversion is or more than one person. See Notice 98-2, C.B. 266, considered a distribution and must be reported even if it is with and Pub. 575, Pension and Annuity Income, to help you figure the same trustee and even if the conversion is done by a the taxable amount to enter in box 2a. trustee-to-trustee transfer. When an individual retirement R-7