This discussion is relevant to those of you who receieved a 1099-R without making a distribution and/or anyone who rolled over funds from a 401k to an IRA. This post is designed to help you learn about how 1099-R and 5498 forms.
There are several reasons why people receive 1099-Rs. You will receive a 1099-R if you:
Depending on the reason you receive a 1099-R, you may or may not have tax consequences (see the discussion of the 5498 form below), but it is still good to understand the form and why you received it.
If you did one of the first two items on the above list, your reported income will increase by the amount on the 1099-R form. If your asset was devalued to zero, you essentially are paying tax on a distribution that has zero value. Tax on something worth nothing is also equal to nothing.
If you received the 1099-R form for one of the last 2 reasons listed above, another reporting form becomes relevant, form 5498 which is also filed with the IRS by New Direction Trust Company as part of our annual IRS reporting. The 5498 will reflect the results of any rollovers you made to accounts held by us.
For example, if you rolled funds from an IRA to an HSA, the 5498 will reflect that the amount reported on the 1099-R was rolled over into an HSA and not received by you personally (the IRS only allows that once in your lifetime). The same is true if you rolled funds over to an IRA from a 401k plan. The net result is that the 5498 will indicate that the amount reported on the 1099-R did not result in increased income for the current tax year.
Your first statement of the year serves as your substitute form 5498. You can reference this form for your records. As long as the amounts on the 1099-R match the amount listed as the rollover which funded your account on your statement from us, the net resulting tax is zero. Keep your statement (substitute 5498) and the 1099-R form with your tax files for documentation.