When you receive a distribution from a retirement or pension plan, you’ll receive Form 1099-R from your plan administrator. You must report your distribution even if it is not taxable. An eligible rollover into another plan, for example, is not taxable, but you must report it as a distribution.
Taxable distributions are all subject to income tax, but if you take a distribution before you reach 59 1/2, you might have to pay an additional 10 percent penalty. You’ll use information from your Form 1099-R to determine the taxable amount and report your activities to the Internal Revenue Service.
Form 1099-R can be used to report pension plan distributions. All distributions must be reported, even if you suspect that they are not subject to tax.
Review Form 1040
Obtain Form 1040 from the IRS website. Look at box 1 on the Form 1099-R. If you’re using Form 1040, report the amount on line 15a if your distribution is from an IRA or line 16a if the distribution is from a pension plan.
Report Taxable Amounts
In many cases, your gross distribution in box 1 of Form 1099-R equals your taxable distribution but in some cases, it may not. For example, an eligible rollover distribution is not taxable. Look at box 2 of your Form 1099-R.
If an amount is shown, report the amount on line 15b of your Form 1040 for IRA distributions or line 16b for pension plan distributions. Box 2 amounts on your Form 1099-R reflect the taxable part of your distribution.
Determine Distribution Taxability
Look at the code in box 7 of your Form 1099-R — if no amount is shown in box 2 — to determine if your distribution is taxable. The most common codes for this box are 1 through 4 and 7. If the box shows a 1 or 7, your gross distribution is fully taxable.
Report the amount in box 1 of your Form 1099-R on line 15b or 16b of your Form 1040. If box 7 of your Form 1099-R shows code 2, 3 or 4, your distribution is not taxable. Write a zero on line 15b or 16b of Form 1040.
Report Early Withdrawal Penalties
If the box 7 code of your Form 1099-R shows a code 1, your plan administrator has indicated you took an early distribution. Distributions you take before age 59 1/2 are subject to an early withdrawal penalty of 10 percent in addition to income tax. However, even if you took an early distribution, you may qualify for a waiver of the additional penalty. Review IRS Form 5329 and its instructions to determine if you meet an exception.
Distributions that qualify for exceptions include those used to pay health insurance premiums while you’re unemployed, those used for the purchase of a first home and those used to pay for college expenses. If you have a code 1 in box 7 of your Form 1099-R, you’ll use Form 5329 to report your exception or report your early withdrawal penalty.