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 2023 year-end distribution reporting for these types of tax advantaged accounts.
IRA reporting
There are four types of reports an IRA custodian or trustee must provide to account owners by January 31 each year:
- IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc.
- A statement of the December 31 value of an individual’s IRA, commonly called a Fair Market Value (FMV) statement.
- A required minimum distribution (RMD) notice, applicable for traditional, simplified employee pension (SEP), and Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA owners who must take an RMD for that year.
- Usually, an income tax withholding notification for IRA owners who are taking preauthorized (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 done by March 31 for organizations filing 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 2023 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 by IRA custodians and trustees to IRA owners (and beneficiaries, if applicable) by January 31. This statement reports the December 31 FMV to an IRA owner or beneficiary. Data processors typically 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 the IRS’s 2023 Instructions for Forms 1099-R and 5498 (i.e., Specific Instructions for Form 5498/Statements to participants) and the IRS’s 2023 General Instructions for Certain Information Returns (i.e., Section M) at irs.gov for more information on statements.
The RMD notice reminds traditional, SEP, and SIMPLE IRA owners who are required to take an RMD 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 completed 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 typically 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. Subscribers to the Wolters Kluwer IRA Library or IRA Electronic Book (i.e., IRA E-book) can find more information on this notice requirement within. The requirements for the notice are also available 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 done by March 31 for organizations filing electronically and February 28 for organizations filing on paper.
Form 1099-SA shows the distribution amount taken by an HSA owner and includes an IRS distribution code indicating the type of distribution (e.g., Code 1 for normal distribution). See the IRS’s 2023 Instructions for Forms 1099-SA and 5498-SA at irs.gov for detailed information on IRS Form 1099-SA reporting. Note that in 2020 the IRS moved to a continuous-use Form 1099-SA which has a revision date of November 2019.
There is no FMV statement requirement for HSAs. The FMV of an HSA may be provided 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 done by March 31 for organizations filing 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 a breakdown of earnings and basis is not provided on Form 1099-Q, the FMV of the CESA must be included on the form. An IRS distribution code indicating the distribution type may be included, however is not a requirement. Note that in 2020 the IRS moved to continuous-use Instructions for Form 1099-Q and a continuous-use Form 1099-Q which both have a revision date of November 2019. See the IRS’s Instructions for Form 1099-Q (Rev. November 2019) at irs.gov for detailed information on IRS Form 1099-Q reporting.
There is no FMV statement requirement for CESAs.
For an opportunity to learn more about IRAs and other tax-advantaged accounts including Health Savings Accounts and Coverdell Education Savings Accounts, consider the Wolters Kluwer IRA Library or our on-demand video training offered on a variety of topics. Go here to learn more about training opportunities available to you, or you can call us at 1-800-552-9408.
