Form 1099-R Reminder

Jessica Bokhart, CFP®

Today we want to take a couple minutes of your time to remind you of a few items as you work through gathering your 2020 tax forms for your tax preparer or if you self-prepare your tax returns. The items we will talk about today are just a handful of the items to consider when filing your tax return, over our years of reviewing our Client’s tax returns these are a few commonly overlooked items we typically see.

Charles Schwab & Co. sent the 2020 Form 1099-Rs to Clients in January 2021, if you took a distribution from your IRA in 2020 then you should have received a Form 1099-R reflecting the distribution(s). The 1099-R is the tax form issued when a distribution from an IRA is taken for that tax year. Any distributions reported on Box 2a will be considered taxable income to you. While the majority of the time the reporting of the taxable income in Box 2a is accurate, a few exceptions exist:

1. Roth Conversions

If you transferred funds from your Traditional IRA to your Roth IRA in 2020, you would receive a Form 1099-R for the distribution from your Traditional IRA. Box 2a of the 1099-R will indicate the distribution from your IRA is a taxable event, however, that may not always be the case. If you made non-deductible contributions to your IRA then converted those contributions to a Roth IRA, as an example, you will need to make sure your tax preparer knows this.

2. CARES Act Waives 2020 RMDs

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act waived Required Minimum Distributions (RMDs) from IRAs and Inherited IRAs. The CARES Act went into effect in March. For Clients that took their IRA RMDs prior to March, if it made sense to not take the IRA RMD in 2020 but they had already done so, we worked with Clients to deposit the funds back into their IRA. Unfortunately, Inherited IRA RMDs did not qualify for the rollover of distributions taken prior to the CARES Act.

Box 2a of the 1099-R shows the taxable amount of distributions from an IRA in 2020. The 1099-R WILL NOT reflect the funds that may have been deposited back into your IRA per the CARES Act. You would need to report to your tax preparer if you completed an IRA Rollover of your IRA Required Minimum Distribution in 2020.

3. 60-Day IRA Rollovers

A 60-Day IRA Rollover essentially allows you to take a short-term loan from your IRA. If the funds are deposited back into the IRA within 60 days, this is a non-taxable event. Only one 60-Day IRA Rollover is allowed every 12 months, so this is typically a one-off solution for most of our Clients.

Again, Box 2a of the 1099-R will show the distribution from the IRA as a taxable event. It is the responsibility of the taxpayer to report to their tax preparer the amount of any IRA Distributions that were attributable to a 60-Day IRA Rollover. Our Clients should have a receipt showing the deposit back into the IRA occurred within the 60-day timeframe that they can provide to their tax preparer. Please reach-out to your Market Street Advisor if you need a copy of the receipt.

4. Qualified Charitable Distributions

Post Age 70 ½, Individuals may make a direct transfer from their IRA to a charity. This distribution will satisfy a portion, or all, of this individuals IRA Required Minimum Distribution RMD. The charity must be a 501c3 and the gift must go directly from the IRA Custodian (Schwab in our Client’s Case) to the charity. The charitable donation directly from the IRA to the Charity, post age 70 ½, is called a Qualified Charitable Distribution, or QCD.

Again, Box 2a of the 1099-R shows the taxable amount of distributions in 2020. The 1099-R WILL NOT reflect the funds that were disbursed from the IRA directly to Charity. These distributions will show up on the 1099-R as a taxable distribution. It is the responsibility of the taxpayer to report to their tax preparer the amount of IRA Distributions that were attributable to QCDs, or Qualified Charitable Distributions. While the amount of the QCD is not considered a taxable IRA Distribution, the gift to the charity may not be claimed as a charitable tax deduction. Please reach-out to your Market Street Advisor to confirm the amount of your IRA Distributions that may have been attributed to QCDs in 2020.

As always, please do not hesitate to reach-out to your Advisor at Market Street. We are looking forward to hearing from you!

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Jessica Bokhart, CFP®
Senior Financial Planner & Partner


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