Your IRA distributions are reported to the IRS each year. You will also receive this information on IRS Form 1099-R, a document that provides a summary of your distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. So, if you took a distribution from your self-directed IRA (SDIRA) in 2024, this form should be sent to you by the end of January. Form 1099-R will show you and the IRS the amount of distributions from your SDIRA during the year, any amount withheld for federal and state taxes, details on the distribution type (e.g., early or normal), and similar information.
You should examine this form to make sure that the information is correct. Because you will have to report Form 1099-R details to the IRS on your tax return, you will want to ensure that it is accurate to avoid discrepancies between your tax filing and the information provided to the IRS. If you notice an error, let your IRA custodian know immediately. This way, they can fix it or explain why certain information appears on the form. For instance, while a rollover transaction is not subject to taxation, it must still be reported to the IRS as both a distribution and a rollover contribution
IRA TAXATION
The IRS uses Form 1099-R to determine your tax liability. Keep in mind these points when reviewing the form.
- Custodians generally must report Traditional IRA distributions as taxable income. If you have made nondeductible contributions in the past, you are responsible for telling the IRS (on Form 8606) what portion of your distribution has already been taxed.
- Roth IRA distributions, on the other hand, are usually not taxed. However, a code on Form 1099-R will tell you and the IRS whether a nonqualified withdrawal may be subject to taxation and a possible penalty.
- If you take a distribution before you reach age 59½, you may be subject to a 10% early distribution penalty. See our article, How to Avoid the Early Distribution Tax, for more information.
IRS FORM 1099-R: KEY INFORMATION
Form 1099-R contains vital information to help you properly prepare your tax return. The instructions on the form provide additional details.
Box 1 – Gross distribution amount – This box reports the total amount withdrawn from the IRA before any federal or state income taxes were withheld. For a Traditional IRA distribution, this amount is typically taxable.
Box 2a – Taxable portion – This box reports the amount of the distribution that is taxable to the recipient. However, because IRA custodians cannot track basis in an IRA, custodians cannot report the taxable portion of IRA distributions. This box may either show the same amount as Box 1 or it may be blank. If Box 2a shows a dollar amount different from Box 1 and you timely removed an IRA excess contribution, the amount in Box 2a reports the taxable earnings removed with the excess.
Box 4 – Federal income tax withheld – Reports the amount withheld and sent to the IRS, if any, as a prepayment of tax. Include this amount on your income tax return as tax withheld, and if box 4 shows a dollar amount, attach Copy B to your return.
Box 7 – Distribution code – Alerts the IRS as to whether a distribution may be taxable or subject to the 10% early distribution tax. For some types of distributions, more than one code may apply. For example, codes 1 and 8 report the removal of an excess contribution from a Traditional IRA by an IRA owner younger than age 59½. Because the codes used on Form 1099-R alert the IRS to potential tax liability, it’s important that the correct codes are shown on Form 1099-R, or that you can explain the correct taxation on your tax return.
Here are the most common distribution codes for self-directed IRAs and what they tell the IRS:
| Code | What It Means | What It Says About Taxation |
| 1 | Traditional IRA owner was younger than age 59½ at time of distribution and 10% tax applies, OR there is no code for the exception the IRA owner meets to the 10% tax (e.g., higher education expenses). | The 10 % early distribution tax may apply |
| 2 | Traditional IRA owner was younger than age 59½ at time of distribution, but it was a direct conversion to a Roth IRA, an IRS levy, or a substantially equal periodic payment. | Exception to 10% early distribution tax |
| 4 | Beneficiary takes a distribution after the death of the Traditional IRA owner | Exception to 10% early distribution tax |
| 7 | IRA owner was age 59½ or older at the time of distribution | No 10% early distribution tax |
| 8 | IRA owner timely distributed an IRA excess contribution made in 2024 | Earnings listed in Box 2a are taxable for 2024 |
| P | IRA owner timely distributed an IRA excess contribution made in 2023 | Earnings listed in Box 2a are taxable for 2023 |
| J | Roth IRA owner was younger than 59½ at the time of distribution and Code Q or T does not apply | The 10% early distribution tax may apply to a portion of the distribution |
| Q | Roth IRA owner met the requirements for a qualified distribution | No tax and no 10% early distribution tax |
| T | Roth IRA owner was older than 59½, deceased, or disabled, but IRA custodian doesn’t know if 5-year rule has been satisfied for a qualified distribution | May be taxable, but not eligible for the 10% early distribution tax |
NEXT STEPS
Please carefully review the IRS Form 1099-R—or any other information return—that you get from your SDIRA custodian. If you have questions about a 1099-R that you received from STRATA, contact us as soon as possible for an explanation or a possible correction.
For more information on why you may have received Form 1099-R from STRATA and how to view it online, visit our Self-Directed Knowledge Center article: IRS Form 1099-R.
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