New Changes in 2018 for Form 1099-R Reporting

The Internal Revenue Service ("IRS") has issued the updated 2018 Form 1099-R and the updated 2018 Instructions for Forms 1099-R and 5498, containing some important changes compared to the 2017 instructions. Significantly, many of the updates to Form 1099-R reflect the changes made by The Tax Cuts and Jobs Act ("Tax Act").

Plan administrators should use Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, and Insurance Contracts, to report distribution of $10 or more from profit-sharing or retirement plans, individual retirement arrangements (IRAs), annuities, pensions, permanent and total disability payments under life insurance contracts, and other types of retirement plan payments. Plan administrators should also report the following on Form 1099-R: (i) death benefit payments made by employers that are not made as part of a pension, profit-sharing, or retirement plan; (ii) payments of reportable death benefits in accordance with final regulations that will be published under Internal Revenue Code ("IRC") section 6050Y; and (iii) reportable disability payments made from a retirement plan. 

Several notable changes that may be of interest to retirement plan sponsors and/or administrators are discussed below:
 

1. Recharacterizations of Conversions May Not Be Made in 2018 or later. As amended by the Tax Act, the 1099-R instructions reflect that conversions of a traditional IRA to a Roth IRA, and a rollover from any other eligible retirement plan to a Roth IRA, cannot be recharacterized as having been made to a traditional IRA, if made after December 31, 2017. Conversions made in the 2017 tax year may be recharacterized by the due date (with extensions) for filing the return for that tax year.
2. Disaster Distributions. The instructions reflect that the President may declare special rules applicable to retirement plan distributions that are made to employees affected by certain natural disasters. IRS Publication 976, Disaster Relief, provides additional information regarding disaster distributions.
3. Reportable Policy Sale Box for Form 1099-R. For 2018, the IRS added a new box for the date of a payment of reportable death benefits. IRC section 6050Y requires new information reporting obligations for payments of reportable death benefits after December 31, 2017. A "reportable death benefits" is an amount paid due to the death of the insured under a life insurance contract that has been transferred in a reportable policy sale. A "reportable policy sale" is the acquisition of an interest in a life insurance contract, directly or indirectly, if the acquirer has no substantial family, business, or financial relationship with the insured apart from the acquirer's interest in such life insurance contract. The policy number of the life insurance contract under which benefits are paid is required if the plan administrator is reporting a payment of reportable death benefits.
4. New Distribution Codes for Form 1099-R. For 2018 for box 7, the IRS has added two new distribution codes, as follows: C - Reportable death benefits under section 6050Y (as discussed above) and M - Qualified plan loan offset (as discussed below).

Qualified plan loan offsets are the amounts an employer plan account balance is reduced, or offset, to repay a loan from the plan. Such offset must be due to a plan termination or the employee's severed employment with the employer. 

For more information regarding the new changes in 2018 for Form 1099-R reporting, contact Audra Ferguson-Allen, Sarah Funke, Rob Gauss, Melissa Proffitt, Tara Sciscoe, Chris Sears, or the Ice Miller Employee Benefits attorney with whom you work.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice. The reader should consult with legal counsel to determine how laws or decisions discussed herein apply to the reader’s specific circumstances.