If you took a distribution from your IRA in 2024, it’s essential to understand how this impacts your tax filing and financial strategy. While IRA distributions are generally permitted at any time, they can have varying tax consequences based on factors such as the type of IRA, your age at the time of the withdrawal, and whether the distribution qualifies for any special exemptions.
Properly reporting your distributions to the IRS is critical to avoid costly mistakes or penalties. You'll need to accurately use information from Form 1099-R and potentially file additional forms, such as Form 8606 for nondeductible contributions or Form 5329 for penalty exceptions.
Understanding these responsibilities now allows you to proactively gather the necessary documentation, make informed tax decisions, and maximize your tax efficiency. Seeking guidance from a tax professional or using reputable resources can further help ensure your filing process is smooth and compliant.
IRA Types
Depending on the IRA type the distribution was received from will help you determine what IRS reporting requirements will be needed.
Roth IRA Distributions
Let’s start with Roth IRA withdrawals because most of them are straightforward. Qualified distributions1 are tax-free. The distribution code on the 1099-R will indicate whether the withdrawal is qualified. (See our article for more information on this tax form.) If your distribution is not reported as qualified, this doesn't mean that it is taxable. The Roth IRA ordering rules treat your contributions as coming out before any earnings. Since you have already paid tax on Roth IRA contributions, they are distributed tax-free. However, once you have distributed all your contributions, the earnings will be taxed if your distribution is not considered qualified. This is why it is so important for Roth IRA owners to track their contributions carefully.
If you take a nonqualified distribution, you must file Form 8606 to tell the IRS what portion of your Roth IRA distribution, if any, is subject to taxation or penalty. If the 8606 properly indicates that you are merely distributing nontaxable basis from your Roth IRA, the IRS will not expect you to include this amount in your taxable income.
Traditional IRA Distributions
The IRS normally requires custodians to report Traditional, SEP, and SIMPLE IRA distributions as fully taxable. This is true even if you have previously made after-tax (or nondeductible) contributions. In this case, any distributions you take from a non-Roth IRA will consist of a proportionate amount of pre-tax and after-tax assets. Because financial organizations cannot track IRA owners’ nondeductible contributions, individuals must track such contributions on IRS Form 8606 for every year that they either make an after-tax contribution or take a distribution.
Other Considerations
Did Withholding Apply to Your Distribution?
Although you don’t have to elect withholding on either Traditional or Roth IRA distributions, any amount withheld is simply a prepayment of your tax obligation. You also want to get credit for any amount withheld from your IRA withdrawal. Suppose you have elected to withhold taxes on any IRA distribution. In that case, the IRS requires you to attach a copy of your Form 1099-R to verify the withheld amount. This ensures that the amount withheld will be applied to the tax you owe for the year.
Do You File Form 1099-R?
Yes, Form 1099-R provides information for both you and the IRS about withdrawals. When preparing your tax return, you’ll use Form 1099-R to report:
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- Distribution Amounts: Total IRA (or other qualified plan) distributions
- Taxable Portion: Any amount subject to taxation
- Withholding: Taxes already paid through withholding
- Penalties: Such as early withdrawal penalties
Because the IRS also receives Form 1099-R from the custodian of your retirement accounts, you must be sure that your tax return accurately reflects the information on the form.
Do You Need to File Additional Forms?
The IRS may require you to file other forms with your tax return to reflect specific contributions and distributions.
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- IRS Form 5329: Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts – IRA distributions before age 59½ may trigger a 10 percent additional tax. You don't have to file this form if this is the only additional tax you pay. But if you claim an exception to this tax—or if certain other IRA taxes apply—you must file Form 5329.
- IRS Form 8606: Nondeductible IRAs – You must file Form 8606 for 2024
- If you made a nondeductible IRA contribution,
- If you took a non-Roth IRA distribution and you have nondeductible assets in any such IRA,
- If you converted assets to a Roth IRA, or
- If you took a nonqualified Roth IRA distribution.
- IRS Form 5329: Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts – IRA distributions before age 59½ may trigger a 10 percent additional tax. You don't have to file this form if this is the only additional tax you pay. But if you claim an exception to this tax—or if certain other IRA taxes apply—you must file Form 5329.
Seek Expert Advice
STRATA recommends that you seek sound tax or accounting advice about your IRA distribution questions. You can also visit our Self-Directed IRA Knowledge Center for more information on IRAs and IRS tax reporting. Our self-directed IRA experts are also available to answer your questions regarding IRA distributions.
1You are eligible for a qualified distribution if you have had a Roth IRA for at least five taxable years and you have reached age 59½, are disabled, are buying your first home, or are a Roth IRA beneficiary.
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