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In the United States, when money from a retirement fund is distributed to a person, this is considered a form of income and must be reported to the Internal Revenue Service. Form 1099-R was created for the proper reporting of this money and for determining whether the proper amount of tax has been collected. Filers do not need to worry about providing the myriad of complex data necessary because the distributing institution is responsible for filling out the form.
The Internal Revenue Service requires form 1099-R only from those who received a distribution from a qualified retirement account. There are a variety of institutions that provide qualified retirement accounts, but the majority of taxpayers pull funds from only a few sources. A 401(k) plan is one of the most common types of retirement account, because it is money withheld from a paycheck and often matched, up to a certain percentage, by the employer. An individual retirement account, also known as a traditional IRA, is a retirement fund that an individual normally sets up independently and makes contributions outside of work. Pension programs are becoming rarer but still are considered qualified because it is money for retirement given to an employee by an employer as a reward for a specific number of years of service.
Form 1099-R is only one page long, but it requires a great deal of data to be completed. Personal information such as the individual's name, address and federal identification number are essential for having retirement distribution properly credited. Fields such as gross distribution are used to tally the total dollar amount received before deductions were taken, and the federal income tax withheld box shows the amount that the filer had held out for taxes. More complex fields such as state and local distribution, distribution codes, capital gain and unrealized appreciation all contribute to the overall tax picture for individual retirement funds.
This wide variety of data can be confusing, but fortunately, filers do not have to fill out form 1099-R themselves. The institution paying out the account is responsible for checking its records and properly filling out the data fields. In the United States, it is required that all retirement distribution institutions mail out form 1099-R before February 15 of the year that the money was distributed.
Why do I keep getting a 1099-R every year if I've already closed out my 401K account?