If you received a distribution of at least $10 from your retirement plan, you should receive Form 1099-R from the plan custodian. A copy is also sent to the Internal Revenue Service and your state tax department, if applicable. You will use this form in preparing your return, to report the distribution of retirement benefits such as annuities and pensions.
Tax on Early Distributions
If you decide to take your benefits before the requisite age stipulated by the particular retirement plan, usually age 59 1/2, it's regarded as an early distribution. To discourage early withdrawals or misuse of retirement funds, the IRS levies a 10 percent federal tax on early distributions. Some states will also levy a penalty on these early distributions. You may qualify for an exception and not pay these taxes. Some common exceptions include death, disability or medical expenses that exceed 7.5 percent of your adjusted gross income.
Filing With 1099-R
As a rule, you should receive your 1099-R forms from the retirement plan holder by Jan. 31 and file with the IRS by the stipulated date. For the given year, the form will give details about your gross distribution, taxable distribution amount and the federal income tax that has been withheld. It will also give the contributions made to the investment or the premiums that were paid. On your tax return, record the amount of income tax withheld, if any -- this will be the value in Box 4 of the 1099-R. It is important to attach a copy of the 1099-R to your 1040 in case tax was withheld.
If you have to file and have not received your 1099-R yet, contact the responsible party that was supposed to send it. Call the IRS at 800-829-1040 in case the form has not shown up by Feb. 15 so the agency can advise you accordingly. If you can piece the information together by going through your available records, you can file without it. If the form arrives after you have filed, you will need to file an amended tax return using IRS Form 1040-X, together with the 1099-R. You can't submit Form 1040-X electronically, because you have to personally sign it.
Failure to Report
If you receive the 1099-R after you have filed and do not file an amended return, the IRS may contact you for a copy of the document and reconstruct your return. You'll likely be charged more for taxable income or capital gains and the penalty due for the early distribution. Depending on how late you are, a penalty and interest will be levied. You will receive the bill, which you may appeal within 30 days. Otherwise you have to pay up or the IRS will resort to other means to recover the money, including putting a lien on your property.
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