You will receive a 1099-R if you have received any payment from sources such as pensions, annuities or similar plans. This form will report any income earned from these distributions.
Pension and Annuity Payments
By setting up a retirement funds with your employer you are arranging a compensation agreement. Many retirement plans are contributed to pretax through your payroll and the tax is paid when you take distributions from the plan.
If you retire or become disabled and unable to work you can start receiving your pension and annuity distributions. Some funds will also make payments to a beneficiary of an employee who is deceased. If you made your fund contributions after-tax, only a portion of the distribution is subject to tax. Otherwise if you contributed pre-tax the full amount is usually taxable income at distribution.
Rollover
If you decided to move your retirement funds from one plan to another this is considered a rollover. Your Form 1099-R will who you any direct rollovers in box 7 with either a code of G or H.
Early Distributions
If you receive any payments prior to turning 59 ½ years old it will be considered an early distribution and is subject to additional taxes. The Federal government imposes a 10% early withdraw tax to discourage people from using retirement funds for other purposes. In addition to any extra federal taxes paid on early distributions, you may also be subject to state penalties.
There are exceptions for early distribution, some of them include: death, disability, medical costs more than 10% of your AGI and levies by the IRS.
