Certain retirement payments or distributions a taxpayer receives from a retirement plan or IRA can be “rolled over” by depositing the payment into another retirement plan or IRA within 60 days of the date of distribution. By rolling over the retirement plan distribution, the taxpayer generally does not pay tax on any portion of the rollover amount until they later withdraw it from the new plan. However, the taxpayer must still report the distributions on their tax return. If the taxpayer does not roll over a retirement distribution, it will normally be taxable (other than qualified Roth distributions and any amounts already taxed) and it may also be subject to a 10% additional tax on early distributions unless the taxpayer is eligible for one of the exceptions to the 10% additional tax on early distributions.
Types of Rollovers. Distributions that can be rolled over are called “eligible rollover distributions.” Like all retirement plans or IRA distributions, rollover distributions are reported to the taxpayer on the source document Form 1099-R – Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Depending upon the manner in which the rollover occurs it can affect whether taxes are withheld from the distribution and how the taxable amount is reported on Form 1099-R. Rollovers can occur in the following ways:
- Direct Rollovers occur when the plan administrator makes the payment or distribution directly on the taxpayer’s behalf to another retirement plan or IRA. No taxes are typically withheld from such a transfer and the taxable amount reported on Form 1099-R, Box 2a should be zero. The Distribution Code listed in Box 7 should be G.
- Trustee to Trustee transfers occur when the financial institution holding the IRA sends the payment or distribution directly to another financial institution. No taxes are typically withheld from such a transfer and the taxable amount reflected on Form 1099-R, Box 2a should be zero. The Distribution Code listed in Box 7 should be G.
- 60-day rollovers occur when the distribution or payment is made directly to the taxpayer. Taxes are normally (but not always) withheld from the distributed amount. In this case the taxpayer has 60 days to deposit all or some portion of the distribution into another retirement plan or IRA. The taxable amount reflected in Form 1099-R Box 2a may be the same amount as the gross distribution in Box 1 or it may be blank, but the taxable amount, if any, needs to be calculated and entered in Box 2a. Also, the Distribution Code listed in Box 7 is likely to be either a 1 (Early Distribution if under age 59-1/2 at the time of the distribution) or 7 (Normal Distribution when the recipient is over age 59-1/2 at the time of the distribution).
To enter a rollover distribution that is reported on a Form 1099-R into Keystone Tax Solutions ProWeb, from within the Tax Return (Form 1040) select:
- Federal Section
- Income Menu
- IRA/Pension Distributions (1099R / RRB, SSA)
- Add or Edit a 1099-R
- If the filing status is MFJ, click the circle next to the recipient’s name.
- Enter the Payer’s ID, Name, and Address.
- Under Rollover or Disability, check the box next to Check here if all/part of the distribution was rolled over, and enter the rollover amount, as follows:
- If the distribution was a direct rollover or trustee-to-trustee rollover, this amount will be the same amount as in Box 1.
- If the distribution was made directly to the taxpayer and they deposited all of the distribution into another qualified retirement plan or IRA within 60 days of the date of the distribution, this amount will be the same amount as in Box 1.
- If the distribution was made directly to the taxpayer and they rolled over part of the distribution into another qualified retirement plan or IRA within 60 days of the date of the distribution, the partial amount rolled over will be entered here, and the remainder will be entered in Box 2a.
If the Distribution Code is 1 and the taxpayer received the distribution before age 59-1/2, you will be taken to a screen titled “Form 1099-R Distribution Penalty”. Indicate which type of plan the distribution was made from. If there is an exception the the 10% additional tax on early distribution, click the check box, read the instructions concerning Form 5329 below the check box, and click Continue.
NOTE: This is a guide to entering Rollovers of Retirement Plans and IRA Distributions into the Keystone Tax Solutions Pro program. This is not intended as tax advice.
Additional Information: