Tax Reporting Requirements for a Self-Directed Rollover IRA

You must report IRA contributions and distributions.
i Creatas/Creatas/Getty Images

Individual retirement accounts provide tax benefits that encourage long-term saving. A custodian or trustee must administer you IRA, even if it’s self-directed, and you and your custodian share tax-reporting duties. However, you only need to deal with a few Internal Revenue Service forms to satisfy the tax-reporting requirements.

Form 1099-R

Your custodian will provide you and the IRS with Form 1099-R, detailing your IRA distributions for the previous year. The form features a code that describes the distribution. Different code values indicate whether a distribution is normal or early. The code also reports whether or not an early distribution qualifies for an exception to the 10 percent penalty on money withdrawn before age 59 1/2. The rules offer nine exceptions, including ones for death, disability, a first-time home, education costs, medical bills and medical insurance. Importantly for rollover IRAs, the form will use a special distribution code for direct rollovers and rollover contributions.

Contributions and Rollovers

Form 5498 reports your IRA contributions for the year. Your custodian prepares this form for you and the IRS. The form reports regular contributions, rollovers, Roth conversions and recharacterized contributions. Form 5498 helps the IRS determine that you properly rolled over a distribution reported on Form 1099-R and which is thus free of taxes and penalties. You also use Form 5498 to report the year-end fair market value of your IRA.

The form reports whether required distributions are due for the year. Traditional IRAs require minimum distributions after you reach age 70 1/2. Once you reach this age, you can’t make any more contributions to a traditional IRA.

Additional Taxes

An IRA owner uses Form 5329 to report distributions subject to the 10 percent penalty for early withdrawals. Use the form to calculate the penalty amount. You can also use the form to report early distributions that are exempt from the penalty. This is especially important when your custodian reports the wrong distribution code on Form 1099-R. Form 5329 has other sections to report the tax on excess contributions to traditional and Roth IRAs. The penalty tax rate rises to 50 percent for required distributions you fail to take. Report these in the final section of Form 5329.

Nondeductible IRAs

Use Form 8606 to report nondeductible contributions and distributions. Nondeductible distributions are tax-free. You can create a nondeductible contribution to a traditional IRA when you or your spouse belong to a qualified employer plan and your income exceeds IRS limits, which change annually. You must prorate nondeductible contributions when you withdraw money from a traditional IRA, and you can figure the taxable portion on Form 8606. You also use this form to report Roth conversions and distributions. However, you don’t need to report Roth rollovers on the form.

the nest