Entrust New Direction Blog

You can imagine the dismay of our fantastically patient Director of Accounting, Deborah Broaddus, when she was in the middle of being flooded with a zillion questions from clients about recently received statements and gets yet another question from me, an employee who should know better, about IRS reporting forms. Well, one of the things I've always loved about my job is that I learn something new every day and evidently this day was the day I would learn about how 1099-R and 5498 forms and IRS reporting work together.

I promised Deborah in exchange for her infinite patience with me that I would share what I learned with all of you, since many may have the same questions that I did. Or something similar.

Have you recently asked yourself, 'Why did I get this 1099-R? I didn't make a distribution.' See below for a list of reasons why people receive 1099-Rs. Depending on the reason you receive a 1099-R, you may or may not have tax consequences (see the discussion of the 5498 form below), but it is still good to understand the form and why you received it.

You will receive a 1099-R if you:
* took a distribution from a retirement account.
* made a conversion of a Traditional IRA to a Roth IRA.
* devalued an asset to zero.
* rolled funds over from a 401k to an IRA or other retirement plan.
* rolled funds over from an IRA to an HSA.

If you did one of the first two items on the above list, your reported income will increase by the amount on the 1099-R form. If your asset was devalued to zero, you essentially are paying tax on a distribution that has zero value. No matter what your tax rate, tax on something worth nothing is also equal to nothing.

If you received the 1099-R form for one of the last 2 reasons listed above, another reporting form becomes relevant, form 5498 which is also filed with the IRS by Entrust New Direction as part of our annual IRS reporting. The 5498 will reflect the results of any rollovers you made to accounts held by us.

For example,if you rolled funds from an IRA to an HSA like my family did, the 5498 will reflect that the amount reported on the 1099-R was rolled over into an HSA and not received by you personally (remember the IRS only allows that once in your lifetime). The same is true if you rolled funds over to an IRA from a 401k plan. The net result is that the 5498 will indicate that the amount reported on the 1099-R did not result in increased income for the current tax year.

Your first statement of the year serves as your substitute form 5498.  You can reference this form for your records. As long as the amounts on the 1099-R match the amount listed as the rollover which funded your account on your statement from us, the net resulting tax is zero. Keep your statement (substitute 5498) and the 1099-R form with your tax files for documentation.

Last year we found ourselves in the unfortunate position of emptying our HSA account before the year was done. Luckily we still had not made our 2009 contribution to the HSA, but our personal cash was also running short at the time. We decided to do a one-time rollover from an IRA to the HSA for our 2009 contribution. Anyone can use this tool to fund their HSA in a pinch (or otherwise) once in their lifetime. There's still time to make your contribution for 2009, the deadline is April 15th, 2010. If you've already made your 2009 contribution you can make a 2010 contribution anytime between now and April 15th, 2011.

If your HSA and IRA accounts are both at Entrust New Direction, and you would like to fund your HSA with a one-time rollover from an IRA, download and complete this form and fax or mail it to our office. The funds will be moved from the IRA to the HSA account and the reporting will be handled by our office.

It's always good to be aware of the tax documents you will receive in response to this type of rollover. For more information on these documents and how to understand them, read my follow-up blog post entitled 'Who told the IRS I made a distribution?' for a discussion of the 1099-R and 5498 reporting that happens with a rollover contribution to an IRA or from an IRA to an HSA.

Yes, the unemployment rate is climbing. Of course everyone would rather be employed than un-. We all want money coming in. But for my tiny retirement fund, being laid off was the best thing that could have happened.

I recently went out for adult beverages with some co-workers from my old job at an international telecom company. The company had pretty good bennies overall, especially the matching 401(k) contribution. That was a benefit I only took advantage of after I was married (good thing she's smarter than I am), but free money is free money, so I'm glad I did.

Anyway, everyone had variations of the same story - "I lost 25%" or "I lost 35%" and even one guy's "I lost 45%". As some of you may know - this really hurts. Not only was it the company's match, but it was money from your sweat and tears, in the dump. Not likely to ever come back.

Luckily for me, when I left my job, I found a new job with a self-directed retirement company. One of the first things I did was move my old 401(k) into a self-directed IRA. It was really easy, and since I was out of the stock market, I didn't lose 25, 35 or 40%.

If you happen to be unemployed, laid off in the last 12 months, you can take advantage of a pretty sweet offer with Entrust New Direction (newdirectionira.com). We are waiving our normal setup fee, which means it's free to take your money from doing nothing (or worse than nothing), and roll it into a self-directed IRA so it's ready for any alternative investment that comes along. Or if you really want to stay in the stock market, you can do any combination of stocks/real estate/private company/loans.

Yes, getting laid off stinks. But at least you can let your retirement funds go free.