November 2021

Guidance to Prepare the 2021 Form 1099-R to Report a
Traditional IRA, SIMPLE-IRA or SEP-IRA Distribution

What’s New.
The IRS has stated an IRA custodian/trustee may report a code “1” or a “2” in box 7 to report a disaster distribution. The secure Act creates·a new exception to the 10% early distribution tax for certain withdrawals of up to $5,000 for a qualified birth or adoption.
The RMD age is now age 72 and no longer age 70 1/2.

Online fillable forms. To ease statement furnishing requirements, Copies B, C, D, 1, and 2 have been made fillable online in a PDF format available at IRS.gov/Form1099R and IRS.gov/Form5498. You can complete these copies online for furnishing statements to recipients and for retaining in your own files.

CWF’s Suggestions for completing the 2021 For 1099-R

#1. An IRA includes all investments under one IRA plan agreement. File only one Form 1099-R no matter how many distributions have been made from the investments of the same IRA plan agreement during one year unless different reasons codes apply. Example, Jane Doe is paid a death distribution (reason code #4) from her former spouse’s IRA (she did not treat this IRA as her own) and she is also paid a distribution from her only IRA. She is age 65 (reason code #7). One Form 1099-R must be filed for all distributions with a reason code 4 and a Form 1099-R must be filed for all distributions with a reason code 7.

#2. The Form 1099-R and the Form 5498 are per plan agreement forms. If a person, age 65, has two traditional IRA plan agreements and takes a distribution from each IRA, he or she must be furnished two 1099-R forms each having a reason code 7 in box 7. The IRA custodian could be fined $280.00 times 2 if it only created one Form 1099-R. The IRA custodian must file Form 1099-R using the same name and EIN/TIN used to deposit any tax withheld and to file Form 945, Annual Return of Withheld Federal Income Tax.

#3. The IRS wants an IRA custodian to prepare a Form 1099-R for every distribution, even those less than $10.00.

#4. If an IRA custodian is required to file a Form 1099-R, then it must furnish a statement (i.e. a copy of the 1099-R form) to the recipient.

#5. An account number must be used on a Form 1099-R when a recipient has more than one IRA plan agreement and when you are required to file multiple Form 1099-R’s because of different distribution codes. However, the IRS encourages an IRA custodian to designate an account number for all Form 1099-Rs which it files.

#6.Never enter a negative amount in any box on Form 1099-R.

#7. Use the name and TIN of the individual or entity which receives-funds from the IRA. Normally, this will be the IRA accountholder. However, if you make a distribution to a beneficiary (whether an individual, trust or estate), then the 1099-R is prepared using the name and TIN of the beneficiary. You do not use the name of the decedent for payments made to beneficiaries after his or her death.

#8. An IRA custodian has a duty to correct a Form 1099-R that it knows was prepared incorrectly. The correction must be made as soon as possible. See the IRS instructions as the law now does allow the IRA custodian to not correct an incorrect Form 1099-R in some limited situations.

#9. For a distribution from a traditional IRA, SEP-IRA or SIMPLE-IRA boxes 1 and 2a are to be completed with the same amount unless the IRS instructions discuss a special situation.

#10. For a distribution from a Roth IRA, box 2a is to be left blank unless an exception applies.

#11. An IRA custodian will generally check box 2b, taxable amount not determined for all IRA types. There will be times when it is not checked - withdrawal of an excess or current year contribution before the due date, a recharacterization and rolling funds from an IRA into an accepting employer plan.

#12. The total distribution box is also found in 2b. An “X” is to be entered in this box when the amount shown in box 1 is a total distribution. The instructions for the total distribution section of box 2b are not as clear as they should be. It is doubtful if this box applies to IRA distributions; but the instructions are unclear, and an IRA custodian should complete the box pursuant to the instructions. In order for a person to use the favorable 10-year averaging or capital gain treatment he or she must receive a total distribution. Such treatment does not ever apply to any type of IRA distribution. If this box is not checked, the IRS will question an individual’s attempt to use 10-year averaging. A total distribution is one or more distributions within one tax year in which the entire balance is distributed. This means if two or more nonperiodic distributions occur in more than one year, then there is no total distribution and the box does not need to be checked. For example, a person with an IRA balance of $30,000 withdraws $10,000 in 2019 and the remainder in 2021 has not had a total distribution. Exception. If periodic or installment payments are made in more than one year, this box is to be marked for the year in which the final payment is made.

#13. For a distribution of contributions plus earnings from an IRA under section 408(d)(4), report the gross distribution in box 1, only the earnings in box 2a, and enter Code 8 or P, whichever is applicable, in box 7. Enter Code 1, 2, 4 or 7, if applicable.

#14. For a distribution of contributions without earnings after the due date of the individual return, under section 408(d)(5), leave box 2a blank, and check the “Taxable amount not determined” check box in 2b. Use Code 1 or 7 in box 7 depending on the age of the accountholder.

#15. For a distribution from an IRA that is payable to the trustee of, or is transferred to, an employer plan, or for an IRA recharacterization, enter 0 (zero) in box 2a.

#16. In box 7 indicate the distribution code and enter an “X” in the IRA/SEP/SIMPLE check box if the distribution is from a traditional IRA, SEP-IRA, or SIMPLE-IRA. Do NOT check the box for a distributing from a Roth IRA or for an IRA recharacterization.

#17. Roth IRAs. For a distribution from a Roth IRA, report the total distribution in box 1 and leave box 2a blank except in the case of an IRA revocation or account closure and a recharacterization. Use Code J, Q, or T as 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.

However, for the distribution of excess Roth IRA contributions, report the gross distribution in box 1 and only the earnings in box 2a. Enter Code J and Code 8 or P in box 7.