IRAs, HSAs, and CESAs: Year-End Reporting | Wolters Kluwer
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  • IRAs, HSAs, and CESAs: Year-End Reporting

    Mike Schiller Onward

    by Mike Schiller, Consultant, Tax Advantaged Accounts, Wolters Kluwer

    Published December 17, 2018



    Overview

    Tax reporting is one of the primary responsibilities of an individual retirement account (IRA), Health Savings Account (HSA), or Coverdell Education Savings Account (CESA) custodian or trustee. This article will focus primarily on year-end distribution reporting for these types of tax advantaged accounts. Additionally, see the “What’s New?” section at the end for information about changes to Internal Revenue Service (IRS) Forms 1099-R reporting for 2018.

    IRA Reporting

    There are four types of reports an IRA custodian or trustee must provide to account owners by January 31:

    1. IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc.
    2. A statement of the value of an individual’s IRA, commonly called a Fair Market Value (FMV) statement.
    3. A required minimum distribution (RMD) notice for traditional, simplified employee pension (SEP), and Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA owners who will be age 70½ or older before the end of the year.
    4. Usually an income tax withholding notification for IRA owners who are taking regular (automatic) payments from a traditional, SEP, or SIMPLE IRA.

    IRS Form 1099-R must be provided to IRA owners and beneficiaries by January 31 of the year following distribution. This deadline could be February 15 if part of a consolidated report issued by a broker. Remittance to the IRS must be completed by March 31 for organizations required to file electronically, and February 28 for organizations filing on paper.

    Form 1099-R shows the distribution amount taken by an IRA owner (or beneficiary) and includes a code indicating the distribution type (e.g., Code 7 for traditional IRA normal distributions or Code Q for qualified Roth IRA distributions).

    See the 2018 Instructions for Forms 1099-R and 5498 at irs.gov for detailed information on IRS Form 1099-R reporting.

    The FMV statement must be provided to IRA owners (and beneficiaries, if applicable) by January 31. This statement reports the December 31 FMV to an IRA owner or beneficiary. Many data processors provide this information in a format that summarizes all account activity for the year. For SIMPLE IRAs, a statement of account activity is required, and is usually included on the FMV statement. See Section M of the IRS’s 2018 General Instructions for Certain Information Returns at irs.gov for specific information on FMV statements.

    The RMD notice reminds traditional, SEP, and SIMPLE IRA owners age 70½ or older that they have a distribution requirement for the year. The notice must tell an owner that he or she must take an RMD, the date by which the RMD must be taken, and that the custodian or trustee will inform the IRS of the IRA owner’s RMD status. The statement must also provide either the amount of the RMD for the year or state that the RMD amount will be provided upon request. See IRS Notices 2002-27 and 2003-3 for more information.

    An IRA owner, or beneficiary, that has asked for distributions to be administered automatically should have made a federal income tax withholding election when requesting the automatic distributions. The IRA withholding rules require that, if a distribution recipient does not sign a new withholding election for these preauthorized distributions, the IRA custodian or trustee must send a notice reminding that individual of his or her right to change the withholding election at any time. This reminder notice is often sent in late December or early January, providing time prior to the first distribution of a calendar year for an IRA owner to change his or her current withholding election, if desired. See the Wolters Kluwer IRA Library or IRA Electronic Book (i.e., IRA E-book) for more information on this notice requirement. The requirements for the notice can also be found in Treasury Regulation Section 35.3405-1T.

    HSA Reporting

    Form 1099-SA must be provided to HSA owners and beneficiaries by January 31 of the year following distribution. Remittance to the IRS must be completed by March 31 for organizations required to file electronically and February 28 for organizations filing on paper.

    Form 1099-SA shows the distribution amount taken by an HSA owner and also includes an IRS distribution code indicating the type of distribution (e.g., Code 1 for normal distribution). See the IRS’s 2018 Instructions for Forms 1099-SA and 5498-SA at irs.gov for detailed information on IRS Form 1099-SA reporting.

    There is no FMV statement requirement for HSAs. The FMV of an HSA may be reported to the HSA owner and the IRS on Form 5498-SA, which is sent by the end of May.

    CESA Reporting

    Form 1099-Q must be provided to CESA owners by January 31 of the year following distribution. Remittance to the IRS must be completed by March 31 for organizations required to file electronically and February 28 for organizations filing on paper.

    Form 1099-Q shows the distribution amount, including transfers, taken from a CESA and may include a breakdown of the basis and earnings portion of the distribution amount. If the basis and earnings breakdown is not included on Form 1099-Q, the FMV of the CESA must be provided on the form. An IRS distribution code indicating the distribution type may be provided, but is not required.  See the IRS’s 2018 Instructions for Form 1099-Q at irs.gov for detailed information on IRS Form 1099-Q reporting.

    There is no FMV statement requirement for CESAs.

    What’s New?

    The Tax Cuts and Jobs Act passed in December of 2017 eliminated the ability for individuals to recharacterize traditional-to-Roth IRA conversions and employer plan-to-Roth IRA rollovers (i.e., qualified rollovers) that are completed after 2017. Individuals that completed either of these transaction types during 2017 had the ability to recharacterize the Roth IRA assets to a traditional IRA by their 2017 tax-filing deadline, including extensions. Additionally, anyone who filed timely had until October 15, 2018 to recharacterize. As a result, conversions or qualified rollovers completed in 2017 and subsequently recharacterized in 2018 must be reported accordingly. After the 2018 1099-R reporting requirements are completed, reporting recharacterized conversions and qualified rollovers should be mostly nonexistent.

    Additionally, though there are no special distribution reporting requirements for qualified disaster distributions it is worth mentioning that an individual who took a “qualified 2017 disaster distribution” has three years from the day after the date of distribution receipt to pay it back to an IRA. Similar rules apply to “qualified 2016 disaster distributions”.

    For an opportunity to learn more about IRAs and other tax advantaged accounts, including Health Savings Accounts and Coverdell Education Savings Accounts, consider joining us for one of our IRA, HSA, or CESA Live Streaming events offered on a variety of topics. For more information call us at 1-800-552-9408.

     



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