SEPP-RELATED 1099 FORMS
L1: SEPP-RELATED 1099 FORMSOne more question guys. What is the IRS 1099 form code I should ask my SEPP custodian to use for reporting those distributions? If they don’t code it properly, do I have to include a separate IRS tax form along with the usual annual 1040’s to confirmthey are”non 10% penalty” distributions?2010-08-30 20:11, By: Bill, IP: [126.96.36.199]
L2: SEPP-RELATED 1099 FORMSAfter you tell the custodian that you are setting up a SEPP Plan or 72(t) plan, ask them to code your Form 1099-R with a 2 for “Early distribution, exception applies.” You’re not going to get the Code 2, but what the heck, ask for it anyway. When you get your Form 1099-R you will find Code 1, “Early distribution, no known exception.” If you are using one of the tax prep programs and have entered the Form 1099-R data correctly and answered the associated questions correctly, the program will generate IRS Form 5329 so you can claim the early distribution exception and not have to pay the 10% Early Distribution Penalty. If youuse a professional tax preparer, then he / she should know how to handle SEPP Distributions. If he / she gives you a blank look, then you know more than this professional knows and I would tell them your house is on fire, grab your stuff and run out the front door so you can find another professional tax preparer who does know how to handle SEPP Plans. If you are doing your own taxes and still using a #2 pencil to fill out the forms you get at the Post Office on April 14th, then consider upgrading to either a tax program or a professional tax preparer. (Sorrry about the excess verbeage … I was just hit with a writter’s moment!)
Jim2010-08-30 21:07, By: Jim, IP: [188.8.131.52]
L3: SEPP-RELATED 1099 FORMSI don’t understand why people get so hung up on the 5329 form. It is an easy form to prepare, it’s a no-brainer, and all tax programs do them with little input. Of course, most taxprofessionals know the various allowable exceptions, and the related codes. Taxpayers will have to do some research to see the various exceptions to the 10% penalty. And, filing a form 5329 will never be the cause of an audit. Finally, most financial institutioons/mutual fund cos. no longer use anything other than a Code 1, because they do not know your entire IRA picture, or any other accounts that you might have, or any non-deductible contributions that you did not tell them about.
By the way, most taxpayers never seem to be concerned that they never filed form 8606 for their non-deductible IRA contributions, and the fact that they will pay taxes on these distributions unnecessarily. Many/most tax practitioners do not keep track of these cumulative non-deductible contributions either for their clients, and neither does the IRS.2010-08-31 00:52, By: dlzallestaxes, IP: [184.108.40.206]
L4: SEPP-RELATED 1099 FORMSDLZ:
Very good point about IRS Form 8606; probably the least used form as you stated but a very useful and easy to work form. People could save a bunch of taxes by simply preparing Form 8606 each year. The tax programs will prepare this form and carry forward the data from one year to the next which is a very simple way to track cost basis of non-deductible contributions to TIRA’s.
Jim2010-08-31 14:39, By: Jim, IP: [220.127.116.11]
L5: SEPP-RELATED 1099 FORMSI go a couple steps further. I prepare an on-goingschedule showing the non-deductible contributions, by year, and the cumulative cost basis total, and include it with the tax return filed with the IRS every year, even if there were no non-deductible contributions that year. I do the same for ROTH IRA contributions and conversions. That way I don’t have to go back to find the information later, if needed.
Technically you should also keep a copy of all 8606 forms, andpage 1 of the 1040s for the years the non-deductible contributions were made in order to document them.2010-08-31 16:17, By: dlzallestaxes, IP: [18.104.22.168]
L6: SEPP-RELATED 1099 FORMSI think that much of this necessary detail gets lost when a client changes tax preparers, and the new preparer’s organizer fails to collect all the necessary detail.
The new 2010 8606 contains some changes necessary to deal with the special Roth conversion options for 2010.
2010-08-31 20:42, By: Alan S., IP: [22.214.171.124]