How to Rollover your Retirement Plan

If your clients want to rollover their IRA, there are a few things you need to know as a tax preparer.

Form 1099-R, Distributions from Pensions, Annuities, Retirement, or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., should be completed and filed by the company or program for each person they have made a designated distribution to of at least $10. Some of these distributions may be eligible for rollover.  

What is a rollover?  

In this case, we are discussing an individual account rollover, which means that the taxpayer has moved funds from their retirement account to either a traditional IRA or a Roth IRA. People use rollovers to ensure that the funds remain tax-free.   

Types of rollovers 

Rollover distributions are reported on the source document which is 1099-R. Different types of rollovers can affect how the taxable income is reported and what taxes are withheld from the amount. Rollovers can happen in several ways:  

Direct 

This type of rollover occurs when the employer or plan administrator makes a payment to another retirement plan or IRA in the taxpayer’s name. These rollovers are not subject to tax in most cases. If your client has this type of rollover, you should see the taxable amount reported on Form 1099-R in Box 2a. It should be zero. The distribution code associated with this type of rollover is “G” and should appear in Box 7 on Form 1099-R. 

Trustee to Trustee 

A trustee to trustee transfer occurs when the existing IRA institution sends payment directly to another financial institution or account. Taxes are not typically withheld from these transfers. If your client has this type of rollover, you should see the same distribution code and amount as a direct rollover. 

60-day 

If your client has a 60-day rollover, it means that the payment is made directly to the taxpayer and taxes are typically withheld from the amount. The taxpayer then has 60 days to deposit the distribution or a portion of the distribution into another IRA account or retirement plan. The associated distribution code found in Box 7 of Form 1099-R will either be “1,” or “7”. 1 indicates that the taxpayer was under age 59.5 at the time of distribution, and 7 indicates that the taxpayer was over 59.5. The taxable amount reported in Box 2a may either be the same as the gross distribution amount in Box 1 or may be blank. If Box 2a is empty, you will need to help the taxpayer calculate the taxable amount so you can report it on Form 1040 when filling out their tax return.  

Enter a rollover distribution that is reported on 1099-R quickly into TaxSlayer Pro. For a detailed list of distribution codes, please read Form 1099-R Distribution Codes.