IRA'S

An IRA is an INDIVIDUAL RETIREMENT ACCO

provides income tax advantages to individu

A. There are six different types of IRA’s:

1 TRADITIONAL IRA
A Traditional IRA is a retirement savings pla
retirement by contributing a certain amount
on a tax-deferred basis. This means that the
is withdrawn from the IRA. This is an import
resulting in a compounding effect and large
when the owner retires, when the person is
IRA assets.
If the Traditional IRA is not already opened,
generally April 15 of the year following the y
not apply to IRAs. An important benefit to a
deductible and earnings have the opportuni
income may contribute up to $4,000 for the
make catch-up contributions.

2 EDUCATION IRA
You can put away up to $500 per year into a
preferential tax treatment upon distribution
expenses. These plans are not very commo
the amount they allow you to contribue eac
that would qualify. Your IRA financial planne
savings plan you should invest in.

3 SEP IRA - Simplified Employee Pension

A SEP (Simplified Employee Pension) IRA is a
reporting requirements simpler than those f
a good fit for sole proprietors and small com
these plans for their own benefit also. SEP IR
plans due to the fact that they have fewer a
which are tax deductible to employers, mus
 for SEPs. Currently, contributions are limited
whichever is less. SEP participants can cont
an IRA. The employer has until its tax filing
SEP contributions. In order for a business to
Application and an IRS Form 5305-SEP.

4 SIMPLE IRA
The Savings Incentive Match Plan for emplo
sponsored retirement plan. The SIMPLE IRA
proprietorships, partnerships, and corporati
limitation. Certain administrative requireme
IRA plan to stay in compliance with regulato
plan, but it is quickly becoming very popula

5 ROTH IRA
A Roth IRA is a retirement plan which lets el
certain amount each year. Interetst earning
basis, but also are tax-free if distributions a
interest earnings accrue on interest earning
larger account balances.
Who is eligible for a self directed Roth IRA?
Anyone who has earned income and falls wi
the Traditional IRA, the Roth IRA has no age
contribute as long as they like. In a Tradition

Income Limits for the Roth IRA: You may con

and your modified adjusted gross income or
married and file a joint return, and $10,000
separate return). The amount you may cont
adjusted gross income is between $95,000 a
are married and file a joint return, and betw
spouse and file a separate return).
6 Spousal IRA
Spousal IRAs are designed to help non-work
traditional or Roth IRA. Couples can contribu
year ($10,000 if they are both over age 50,
 earned income.)

FORM 1099R
An Internal Revenue Service (IRS) form with
from annuities, profit-sharing plans, retirem
following are some of the items included on
year, the amount of the distribution that is t
contributions made to the investment or pre
distributions made to the holder of the plan

The plan custodian sends the form to the ow

more from the plan in a given year. The form
distribution was made. In some cases, the in
her tax return. The plan owner, the IRS and
receive a copy of the form. 
Box Explanations
1 Gross distribution Shows the total amount you received this ye
amount may have been a direct rollover, a t
to a Roth IRA, a recharacterized IRA contribu
have received it as periodic payments, as n
or as a total distribution.

2a Taxable amount This part of the distribution is generally taxa

is no entry in this box, the payer may not ha
needed to figure the taxable amount. In tha
box 2b should be checked.

2b Taxable amount If the first box is checked, the payer was un

not determined determine the taxable amount, and box 2a

3 Capital gain (included If you received a lump-sum distribution from

in box 2a) plan and were born before January 2, 1936 (
beneficiary of someone born before January
be able to elect to treat this amount as a ca
4972 (not on Schedule D (Form 1040)).
4 Federal income tax Shows federal income tax withheld. Include
withheld on your income tax return as tax withheld, a
an amount (other than zero), attach Copy B

5 Employee contributions Generally, this shows the employee’s invest

/Designated Roth contract (after-tax contributions), if any, rec
contributions or year; the portion that is your basis in a desi
insurance premiums the part of premiums paid on commercial an
contracts recovered tax free; or the nontaxa
charitable gift annuity.

6 Net unrealized If you received a lump-sum distribution from

appreciation in plan that includes securities of the employe
employer’s securities unrealized appreciation (NUA) (any increase
securities while in the trust) is taxed only w
securities unless you choose to include it in
this year.

7 Distribution The following codes identify the distribution

code(s) For more information on these distributions,

1—Early distribution, no known exception (i

age 59 ½).
2—Early distribution, exception applies (und
3—Disability.
4—Death.
5—Prohibited transaction.
6—Section 1035 exchange (a tax-free excha
annuity, or endowment contracts).
7—Normal distribution.
8—Excess contributions plus earnings/exces
earnings) taxable in 2007.
9—Cost of current life insurance protection.
A—May be eligible for 10-year tax option (se
B—Designated Roth account distribution.
D—Excess contributions plus earnings/exce
 in 2005
E—Excess annual additions under section 41
excess amounts under section 403(b) plans
F—Charitable gift annuity.
G—Direct rollover to a qualified plan, a 403(
governmental 457(b) plan, or an IRA.
J—Early distribution from a Roth IRA, no kno
most cases, under age 59 ½).
L—Loans treated as distributions.
N—Recharacterized IRA contribution made f
recharacterized in 2007.
P—Excess contributions plus earnings/exces
in 2006.
Q—Qualified distribution from a Roth IRA.
R—Recharacterized IRA contribution made i
recharacterized in 2007.
S—Early distribution from a SIMPLE IRA in fir
known exception (under age 59 ½).
T—Roth IRA distribution, exception applies.
If the IRA/SEP/SIMPLE box is checked, you h
traditional IRA, SEP, or SIMPLE distribution.

8 Other If you received an annuity contract as part o

distribution, the value of the contract is sho
when you receive it and should not be inclu
2a. When you receive periodic payments fro
contract, they are taxable at that time.

9a Your percentage of total If a total distribution was made to more than

distribution person, the percentage you received is show

9b Total employee For a life annuity from a qualified plan or fro

contributions plan (with after-tax contributions), an amou
the employee’s total investment in the cont
compute the taxable part of the distribution
10 to 15 State Details If state or local income tax was withheld fro
distribution, boxes 12 and 15 may show the
distribution subject to state and/or local tax

Guide to Distribution Co

Distribution Codes Explanations

1—Early distribution, no known exception.

Use Code 1 only if the employee/taxpayer h
and you do not know if any of the exception
2, 3, or 4 apply. Use Code 1 even if the distr
medical expenses, health insurance premiu
education expenses, a first-time home purc
reservist distribution under section 72(t)(2)(
Code 1 must also be used even if a taxpaye
she modifies a series of substantially equal
section 72(q), (t), or (v) prior to the end of t

2—Early distribution, exception applies.

Use Code 2 only if the employee/taxpayer h
and the distribution is:
• A Roth IRA conversion (an IRA converted t
• A distribution made from a qualified retire
of an IRS levy under section 6331.
• A section 457(b) plan distribution that is n
additional 10% tax. But see Section 457(b) p
R-10 for information on distributions that ma
additional tax.
• A distribution from a qualified retirement p
service where the taxpayer has reached age
• A distribution from a governmental define
safety employee after separation from servi
reached age 50.
• A distribution that is part of a series of sub
payments as described in section 72(q), (t),
 • A distribution from a governmental plan fo
long-term care insurance premiums for a re
under section 402(l).
• Any other distribution subject to an excep
(t), or (v) that is not required to be reported

3—Disability.
For these purposes, see section 72(m)(7).

4—Death.
Use Code 4 regardless of the age of the em
indicate payment to a decedent’s beneficiar
trust. Also use it for death benefit payments
not made as part of a pension, profit-sharing

5—Prohibited transaction.
Use Code 5 if there was a prohibited (impro
Code 5 means the account is no longer an IR

6—Section 1035 exchange.

Use Code 6 to indicate the tax-free exchang
annuity, or endowment contracts under sec

7—Normal distribution.
Use Code 7: (a) for a normal distribution fro
traditional IRA, section 401(k), or section 40
taxpayer is at least age 591/2, (b) for a Roth
reconversion if the participant is at least ag
distribution from a life insurance, annuity, o
for reporting income from a failed life insura
sections 7702(g) and (h). See Rev. Rul. 91-1
Code 7 with Code A, if applicable. Generally
code applies. Do not use Code 7 for a Roth I
Note: Code 1 must be used even if a taxpay
or she modifies a series of substantially equ
under section 72(q), (t), or (v) prior to the e
8—Excess contributions plus earnings/excess deferrals (and/or earnings) ta
Use Code 8 for an IRA distribution under sec
Code P applies. Also use this code for correc
excess deferrals, excess contributions, and
contributions, unless Code D or P applies. Se
Distributions on page R-4 and IRA Revocatio
page R-2 for more information.

9—Cost of current life insurance protection.

A—May be eligible for 10-year tax option (se
B—Designated Roth account distribution.
D—Excess contributions plus earnings/exce
in 2005
E—Excess annual additions under section 41
excess amounts under section 403(b) plans
F—Charitable gift annuity.
G—Direct rollover to a qualified plan, a 403(
governmental 457(b) plan, or an IRA.
J—Early distribution from a Roth IRA, no kno
most cases, under age 59 ½).
L—Loans treated as distributions.
N—Recharacterized IRA contribution made f
recharacterized in 2007.
P—Excess contributions plus earnings/exces
in 2006.
Q—Qualified distribution from a Roth IRA.
R—Recharacterized IRA contribution made i
recharacterized in 2007.
S—Early distribution from a SIMPLE IRA in fir
known exception (under age 59 ½).
T—Roth IRA distribution, exception applies.
RETIREMENT ACCOUNT. An IRA is a personal savings plan that
antages to individuals saving money for retirement purposes

rement savings plan that allows people who are eligible to save for
g a certain amount each year. The interest earned in a Traditional IRA grow
This means that the Traditional IRA owner doesn't pay taxes until the amount
A. This is an important benefit  because interest accrues on top of interest,
ng effect and larger balances. Ideally, amounts are distributed from the IRA
when the person is in a lower tax bracket, which results in lower taxes on the

ot already opened, it must be opened by your tax filing due date, which is
year following the year to which the contribution applies. Tax Extensions do
ortant benefit to a Traditional IRA is that contributions can be tax
have the opportunity to grow tax-deferred. Individuals who have earned
p to $4,000 for the 2006 tax year. Also, earners age 50 and over can also

$500 per year into an education IRA, the money grows tax-free and has
nt upon distribution to the beneficiary who uses it for authorized education
re not very common in that they restrict who can make contributions to them,
ou to contribue each year, and the limits on the type of education expenses
RA financial planner should be able to help you in firguring out what IRA

ee Pension) IRA is an employee benefit plan with compliance and

impler than those for qualified plans. For that reason, SEP IRAs are generally
tors and small companies (under 100 employees). Sole proprietors may start
benefit also. SEP IRA's are sometimes used in place of Keogh retirement
t they have fewer administrative and tax filing requirements. Contributions,
to employers, must be made to IRAs because IRAs are the funding vehicle
 ibutions are limited to 25% of adjusted gross income or $41,000,
rticipants can contribute up to $4,000 or $4.500 if over 50 years of age, to
s until its tax filing date (including extensions) for its business to make any
er for a business to open up a SEP IRA you must complete an IRA
orm 5305-SEP.

atch Plan for employees (SIMPLE) IRA plan, is an IRA based employer
n. The SIMPLE IRA can be started by any business, including sole
hips, and corporations. However, the business must meet the 100 employee
istrative requirements must be followed every year, in order for the SIMPLE
iance with regulatory requirements. The SIMPLE IRA is a fairly new IRA
oming very popular.

t plan which lets eligible individuals save for retirement by contributing a

r. Interetst earnings on investments in a Roth IRA grow on a tax-deferred
ee if distributions are qualified. This is a very important feature, because as
on interest earnings, the result is a comounding effect and therefore much

directed Roth IRA?

ncome and falls within the income limits can establish a Roth IRA. Unlike
oth IRA has no age limit for contributions, so individuals can continue to
y like. In a Traditional IRA, individuals can only contribute until age 70 1/2.

h IRA: You may contribute to a Roth IRA if you have taxable compensation
ed gross income or MAGI is less than $110,000 ($160,000 if you are
eturn, and $10,000 if you are married, lived with your spouse and file a
ount you may contribute to a Roth IRA is gradually less if your modified
between $95,000 and $110,000 (between $150,000 and $160,000 if you
nt return, and between $0 and $10,000 if you are married, lived with your
e return).

d to help non-working spouses save for retirement by investing in a

ouples can contribute up to $8,000 to either type of plan for the 2006 tax
both over age 50, as long as the total IRA contribution is less than their
vice (IRS) form with which an individual reports his or her distributions
ring plans, retirement plans, IRAs, insurance contracts and/or pensions. The
e items included on the form: the gross distribution paid during the given tax
distribution that is taxable, the federal income tax that has been withheld, the
e investment or premiums paid, and a code that represents the type of
holder of the plan.

s the form to the owner of a plan if he or she has made distributions of $10 or

given year. The form is mailed to recipients by January 31 of the year after the
some cases, the individual needs to attach a copy of Form 1099-R to his or
owner, the IRS and the municipal or state tax department (if applicable) all  

you received this year. The

a direct rollover, a transfer or conversion
terized IRA contribution; or you may
dic payments, as nonperiodic payments,

on is generally taxable. If there

e payer may not have all the facts
able amount. In that case, the first box in

, the payer was unable to

mount, and box 2a should be blank.

um distribution from a qualified

e January 2, 1936 (or you are the
born before January 2, 1936), you may
his amount as a capital gain on Form
(Form 1040)).
x withheld. Include this amount
n as tax withheld, and if box 4 shows
ero), attach Copy B to your return.

employee’s investment in the

butions), if any, recovered tax free this
your basis in a designated Roth account;
d on commercial annuities or insurance
ree; or the nontaxable part of a

um distribution from a qualified

ies of the employer’s company, the net
NUA) (any increase in value of such
st) is taxed only when you sell the
ose to include it in your gross income

tify the distribution you received.

these distributions,

known exception (in most cases, under

eption applies (under age 59 ½).

ge (a tax-free exchange of life insurance,

ontracts).

plus earnings/excess deferrals (and/or

urance protection.
-year tax option (see Form 4972).
unt distribution.
plus earnings/excess deferrals taxable
 ns under section 415 and certain
ection 403(b) plans.

ualified plan, a 403(b) plan, a

n, or an IRA.
a Roth IRA, no known exception (in

contribution made for 2007 and

plus earnings/excess deferrals taxable

from a Roth IRA.

contribution made in 2006 and

m a SIMPLE IRA in first 2 years, no

age 59 ½).
exception applies.
x is checked, you have received a
MPLE distribution.

y contract as part of a
the contract is shown. It is not taxable
should not be included in boxes 1 and
riodic payments from the annuity
e at that time.

made to more than one

ou received is shown.

qualified plan or from a 403(b)

ibutions), an amount may be shown for
estment in the contract. It is used to
t of the distribution.
ax was withheld from the
d 15 may show the part of the
ate and/or local tax.

to Distribution Codes

mployee/taxpayer has not reached age 591/2

ny of the exceptions under Distribution Code
e 1 even if the distribution is made for
h insurance premiums, qualified higher
st-time home purchase, or a qualified
er section 72(t)(2)(B), (D), (E), (F), or (G).
d even if a taxpayer is 591/2 or older and he or
ubstantially equal periodic payments under
prior to the end of the 5-year period.

mployee/taxpayer has not reached age 591/2

an IRA converted to a Roth IRA).

m a qualified retirement plan or IRA because
ion 6331.
istribution that is not subject to the
ee Section 457(b) plan distributions on page
istributions that may be subject to the 10%

ualified retirement plan after separation from

yer has reached age 55.
overnmental defined benefit plan to a public
paration from service where the taxpayer has

rt of a series of substantially equal periodic

n section 72(q), (t), or (v).
overnmental plan for the payment of health or
premiums for a retired public safety officer

ubject to an exception under section 72(q),

ired to be reported using Code 1, 3, or 4.

section 72(m)(7).

the age of the employee/taxpayer to

cedent’s beneficiary, including an estate or
h benefit payments made by an employer but
nsion, profit-sharing, or retirement plan.

a prohibited (improper) use of the account. None

nt is no longer an IRA.

e tax-free exchange of life insurance,

ontracts under section 1035.

mal distribution from a plan, including a A

01(k), or section 403(b) plan, if the employee/
591/2, (b) for a Roth IRA conversion or
ipant is at least age 591/2, and (c) to report a
surance, annuity, or endowment contract and
m a failed life insurance contract under
See Rev. Rul. 91-17, 1991-1 C.B. 190. Use
plicable. Generally, use Code 7 if no other
Code 7 for a Roth IRA.
ed even if a taxpayer is 591/2 or older and he
of substantially equal periodic payments
or (v) prior to the end of the 5-year period.
nd/or earnings) taxable in 2007
tribution under section 408(d)(4), unless
this code for corrective distributions of
contributions, and excess aggregate
e D or P applies. See Corrective
4 and IRA Revocation or Account Closure on

-year tax option (see Form 4972).

unt distribution.
plus earnings/excess deferrals taxable

ns under section 415 and certain

ection 403(b) plans.

ualified plan, a 403(b) plan, a

n, or an IRA.
a Roth IRA, no known exception (in

contribution made for 2007 and

plus earnings/excess deferrals taxable

from a Roth IRA.

contribution made in 2006 and

m a SIMPLE IRA in first 2 years, no

age 59 ½).
exception applies.
Types Of Source Document For 1099-R
1 Organizer Page
2 1099-R
3 Handwritten Information
4 Typed Information/Printed Income Summary

SOURCE DOCUMENT

1 Organizer Page
 FORM 1099R

2 - 1099-R
Sample 1

Sample 2
Input Screens in Tax Softwares
1 W3
2 W6
3 IRS - 1099-R

W3 W6
Box Input Screen Box Box
1 Gross distribution W3/W6/IRS 48 60

2a Taxable amount W3/W6/IRS 50 61

2b Taxable amount not determined W6/IRS N/A 62

Total Distribution W6/IRS N/A 63
3 Capital gain (included in box 2a) W3/W6/IRS 52 64
4 Federal income tax withheld W3/W6/IRS 54 65

Employee contributions
5 /Designated Roth contributions
or insurance premiums W6/IRS N/A 66

6 Net unrealized appreciation in

employer’s securities W6/IRS N/A 67
7 Distribution code(s) W6/IRS N/A 68
X if IRA Distribution W3/W6/IRS 92 69
8 Others
Your percentage of total W6/IRS N/A 70
9a distribution. W6/IRS N/A 71
9b Total employee contributions W6/IRS N/A 73
10 State Tax Withheld W3/W6/IRS 56 74
11 State/Payer's state no. W6/IRS N/A 51
12 State Distribution W6/IRS N/A 75
13 Local Tax withheld W3/W6/IRS 56 76
14 Name of Locality W6/IRS N/A 77
15 Local Distribution W6/IRS N/A 78
Output
If the distribution is IRA, then it will flow to 1040 line no-15a
If the distribution is PENSIONS/ANNUITIES, then it will flow to 1040 line no-16a
If the distribution is IRA, then it will flow to 1040 line no-15b
If the distribution is PENSIONS/ANNUITIES, then it will flow to 1040 line no-16b

Schedule D 1040 Line 13

1040 Line 64

Schedule A Line 5

Schedule A Line 5
line no-16a

line no-16b
 69

70&71

72
 73

74-78