What is the Process for Entering Form 1099-R - Rollovers of Retirement Plans and IRA Distributions in ProWeb?
Some retirement distributions or payments given to a taxpayer by the IRA or from a retirement plan can be rolled over when you deposit the payment into a different retirement plan or IRA during the immediate 60 days after the distribution date. No tax is paid on the rolled over amount until it is withdrawn from the new plan. It is however mandatory that the distribution be reported on the tax return. If a retirement distribution is not rolled over, it will be subject to tax as well as the 10% additional tax due to early distribution if at all the taxpayer is not yet eligible for the distribution or if they lack the exceptions to the 10% additional tax on early distributions.
Types of Rollovers. Those distributions capable of being rolled over are referred to as “eligible rollover distributions.” Rollover distributions are to be reported on Form 1099-R - Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts among others. Depending on how the rollover is done, it may affect the withheld taxes from the distribution as well as the manner in which the taxable amount is reported on Form 1099-R. The following are the ways in which the Rollovers occur:
- Direct Rollovers. These occur when the administrator of the plan makes the distribution or payment on behalf of the taxpayer directly into a different IRA or retirement plan. Such a transfer should not have any taxes withheld from it. No amount (zero) should be reported on Box 2a of Form 1099-R. G should be the Distribution Code in Box 7.
- Trustee to Trustee. These occur when the payment or distribution are directly sent to another financial institution by the financial institution holding it. Such a transfer has no tax withheld from it. No amount (zero) should be reported on Box 2a of Form 1099-R. G should be the Distribution Code in Box 7.
- 60-day rollovers. These occur whenever the payment or distribution is made to the taxpayer directly. At times, taxes are withheld from the amount that is distributed. In this rollover, the taxpayer is required to deposit the whole or part of the distribution into another IRA or retirement plan within 60 days of its reception. The taxable amount in Box 2a of Form 1099-R can either be the equal to the gross distribution in Box 1 or it may be left empty. If there is any taxable amount, it should be calculated and reported in Box 2a. It is likely that the Box 7 Distribution Code is a 1 (Early Distribution - for those below the age of 59 ½) or 7 (For recipients above the age of 59 ½).
To enter a rollover distribution reported on Form 1099-R into the ProWeb:
- Go to the Federal Section of a tax return
- Proceed to the Income Menu
- Select the IRA/Pension Distributions (1099R/ RRB, SSA)
- Add or edit a 1099-R
- If it is a MFJ return, click on the circle that is next to the name of the recipient.
- Enter the Name, Address and ID of the Payer.
- Mark the checkbox that is next to Check here if all or part of the distribution was rolled over, under Rollover or Disability then enter the rollover amount as:
- In case it is a direct or trustee to trustee rollover, this amount must be the same as that in Box 1.
- If it is a 60 day rollover where the whole distribution amount was redeposited, this amount must be similar to the one in Box 1.
- If it is a 60 day rollover in which only a part of the distribution is redeposited, that part of the distribution will be entered here then the rest entered in Box 2a.
You will be led to the “Form 1099-R Distribution Penalty” page if the Distribution Code is 1 and the distribution was served to the taxpayer. Show the type of plan from which the distribution was made. If at all you have an applicable exception to the 10% additional tax penalty on early distributions, check the box for that exception, study the Form 5329 instructions below the check box then Click Continue.
Note: This is not tax advice. It is a guide on how to enter Rollovers of Retirement Plans and IRA Distributions into the Taxx Savage program.
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