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Updates to Form 1099-R and New Guidance

Sikich

Nov 6 2018

2 min read

The IRS released an updated 2018 Form 1099-R, “Distributions from Pensions, Annuities, Retirement or Profit-sharing Plans, IRAs, and Insurance Contracts” and related 2018 guidance for the form.

Updates reflect changes implemented from the 2017 Tax Cuts and Jobs Act. Recently added to this form are new distribution codes for reportable death benefits on life insurance contracts (Code C) and qualified loan offsets. Qualified plan loan offsets are the amounts an employer plan account balance is reduced, or offset, to repay a loan from the plan (Code M). Previously the instructions only address deemed loans. Below are definitions for each type of reportable event:

Deemed distribution (Code L): A deemed distribution occurs when a loan does not meet any one of the IRS loan requirements. The most common situation is when a participant fails to make payments in accordance with the established schedule. If payments exceed certain timeframes, then the IRS rules require that the participant pays tax on the outstanding balance of the loan. The loan is still required to be maintained in the plan’s recordkeeping until the participant has a distributable event as it still impacts the participant’s eligibility for future loans. A distributable event is when a participant could otherwise be eligible to take a distribution from the plan, generally termination of employment or attainment of plan’s normal retirement age, death or disability.
Loan Offset (Code M): A loan can be fully removed from the plan’s recordkeeping once a participant with a deemed distribution has a distributable event such as termination of employment. At this time the loan is fully removed from all plan records.

Beyond these new codes, the form and associated guidance were also revised to include special rules pertaining to retirement plan distributions made to employees affected by specific natural disasters as declared by the President. Lastly, an additional update states that there will be no recharacterizations of a conversion of a traditional IRA to a Roth IRA made in 2018 or later.

For further guidance regarding the updated Form 1099-R, please contact your Sikich advisor.

This publication contains general information only and Sikich is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or any other professional advice or services. This publication is not a substitute for such professional advice or services, nor should you use it as a basis for any decision, action or omission that may affect you or your business. Before making any decision, taking any action or omitting an action that may affect you or your business, you should consult a qualified professional advisor. In addition, this publication may contain certain content generated by an artificial intelligence (AI) language model. You acknowledge that Sikich shall not be responsible for any loss sustained by you or any person who relies on this publication.

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Sikich

Sikich is a global company specializing in technology-enabled professional services. With more than 1,900 employees, Sikich draws on a diverse portfolio of technology solutions to deliver transformative digital strategies and is comprised of one of the largest CPA firms in the United States. From corporations and not-for-profits to state and local governments and federal agencies, Sikich clients utilize a broad spectrum of services* and products to help them improve performance and achieve long-term, strategic goals. *Securities offered through Sikich Corporate Finance LLC, member FINRA/SIPC. Investment advisory services offered through Sikich Financial, an SEC Registered Investment Advisor. 