You May be Surprised When You Receive Your IRA 1099-R!

Generally each individual who receives individual retirement account (“IRA”) distributions will receive a Form 1099-R which indicates the amount of distribution, indicating by codes what amount is taxable and non-taxable and other information. The Internal Revenue Service (“IRS”) now requires custodians to add a new code on the Form 1099-R.

Custodians also have to provide a Form 5498 which is filed annually  for every IRA and provides the prior year’s ending account value and whether a distribution is required. The Form 1099-R is only filed if a distribution was made from the IRA.

The new code “K” indicates whether a distribution is of traditional IRA assets not having a readily available fair market value. This information provides the IRS with taxpayers who have self directed IRAs which are owning assets such as limited liability companies, promissory notes, stock, etc. that are hard to value. In the past the IRS had no way of knowing which IRAs held such amounts. This permits the IRS to audit those returns and determine whether the IRA distributions are properly calculated on those hard to value assets.

ADVICE:  If you are receiving minimum required distributions from self directed IRAs with hard to value assets, then be sure that you are working with a qualified company and obtain those values to make sure that your distributions are properly calculated. IF the values are incorrectly calculated there could be severe penalties for the miscalculation-50% penalty if a minimum required distribution is not made properly.

New Word of the Week: Testamentary gift. A gift is a voluntary transfer of property to someone without paying for it. A testamentary gift is one that is made at the date of a person’s death, either through a will or revocable trust. Testamentary gifts can either be a devise, a gift of real property (e.g., land) or a bequest. a gift is of personal property.


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