Did you move any retirement savings last year to a new account or provider? Whether you moved money from your former employer’s retirement plan to your new employer’s retirement plan or to an IRA, it will be reported to the IRS as a distribution by your former plan administrator. Even if you didn’t physically handle the money, the IRS considers it a distribution of potentially taxable income. If you do not wish to include the distribution in your taxable income for the year, you’ll need to inform the IRS why this distribution is not taxable to you.
If you received an IRS Form 1099-R reporting a distribution from your retirement savings in 2021, you may want to consult with a tax professional to ensure you’re reporting the transaction accurately on your IRS Form 1040 tax return, especially if you are dealing with both pre-tax and after-tax or Roth assets. To give you an idea of what to expect, here’s a quick overview of the potential taxation and reporting requirements for rollovers of pre-tax retirement savings from an employer’s retirement plan (e.g., salary deferrals, employer matching contributions, investment earnings).
If your new employer’s plan accepts rollovers and you asked your former employer’s plan administrator to send your account balance to your new plan, you completed a direct rollover. Similarly, you could have requested a direct rollover from your employer plan to your Traditional IRA. Because you don’t receive any money in these transactions, no tax is withheld on the distribution, and the transaction is tax-free because the money went directly into another tax-qualified savings vehicle. The plan administrator sending the money will file a Form 1099-R with the IRS, reporting that your distribution was sent to another retirement account.
Your Form 1099-R reports the distribution/rollover amount. Look for code G in Box 7 to signify a direct rollover to a retirement plan or Traditional IRA.
On your Form 1040 tax return, you’ll need to report the amount distributed on Line 5a, “Pensions and Annuities.” On Line 5b, “Taxable Amount,” enter “0” and write “rollover” in the margin next to it.
If you requested a payment of cash from your retirement plan account and you deposited some or all of that money into another retirement plan or Traditional IRA within 60 days of receiving a check in the mail or an ACH deposit into your bank account, you completed an indirect rollover. If your plan administrator pays a distribution to you that is eligible to be rolled over, they must withhold 20% of the distribution amount and send it to the IRS as a prepayment of the tax that you could owe on this distribution. This withholding is mandatory because many people don’t end up completing the rollover once they have the cash in hand. Assuming you do complete the rollover within 60 days to avoid taxation on the amount distributed, you will also need to deposit the amount that was withheld to complete a rollover of 100% of the amount distributed. If you do not make up the withheld amount or decide to keep a portion of the amount you received, you must include it as taxable income. It will also be subject to the 10% early distribution tax if you are younger than 59½ and do not meet any exceptions to the additional tax.
Your Form 1099-R reports the gross distribution in Box 1 and the amount withheld in Box 4. Look for code 1 in Box 7 if you are younger than age 59½, or code 7 if you are older than 59½ and not subject to the additional 10% tax.
On your Form 1040 tax return, you’ll need to report the gross amount distributed on Line 5a, “Pensions and Annuities.” On Line 5b, “Taxable Amount,” enter the amount that is taxable, if any, and write “rollover” in the margin next to it.
Proof of Rollover
If you’re rolling over money to an IRA, the IRA administrator receiving the rollover will report the amount on IRS Form 5498, proving you completed the rollover. However, you won’t receive a copy of Form 5498 until May 31 of the year after you completed the rollover, so it will not be available to file with your tax return if you file by the April 18, 2022, deadline. Retirement plans do not file Form 5498 to report received rollovers.
You can find instructions for your specific rollover situation with the IRS’s Interactive Tax Assistant tool: Do I Need to Report the Transfer or Rollover of an IRA or Retirement Plan on My Tax Return? It includes questions not only about direct and indirect rollovers, but also Roth and after-tax assets and repayments of distributions taken as coronavirus distributions, childbirth/adoption distributions, IRS levies, and disaster distributions.
For more clarification on rollovers, visit our FAQ page.
Further explanation of Form 1040 can be found on the IRS website.
Further explanation of Form 1099-R and Form 5498 can be found on the IRS website.