2020 Tax Forms: What You Need to Know This Tax Season for Your IRA | Schwab - Millennium Trust Company

2020 Tax Forms: What You Need to Know This Tax Season for Your IRA

March 12, 2021
By Millennium Trust

It’s everyone’s favorite time of year: tax season! Even though tax season comes around every year, it can cause some confusion and be a daunting task for many people – especially with the 2020 tax year being different than others.

To make the process as painless as possible, you’ll want to file your return early, and also understand the forms you are receiving and why you are receiving them.

The two primary tax forms prepared by Millennium Trust pertaining to your IRA are Form 1099-R and Form 5498. Here’s what you need to know for this year's tax season:

What is Form 1099-R?

Tax form 1099-R is used to report rollovers and/or distributions from qualified retirement accounts and IRAs. You will receive a 1099-R for tax year 2020 if:

  • Your qualified retirement plan rolled over to an IRA for you at Millennium Trust.
  • You took a distribution or executed a direct rollover to a current employer's qualified plan from your IRA at Millennium Trust.

All 1099-Rs were mailed by January 31. This video further explains IRS Form 1099-R.

What is Form 5498?

Tax form 5498 is used to report contributions, including rollovers, made to an IRA for the current tax year. You will receive a 5498 if:

  • Your qualified retirement plan was automatically rolled over to an IRA for you at Millennium Trust and/or you made any other contributions in 2020.

Form 5498 may also be used to report the fair market value (FMV) of your IRA as of December 31.

This form is sent out by Millennium Trust after tax season (by May 31), but is not needed to file your taxes, so there’s no need to be alarmed when you don’t have it prior to the tax filing deadline. You should, however, still keep this form for your records.

Your IRA automatically rolling over to Millennium Trust is a nontaxable event, so form 5498 is simply used to report to the IRS that your money moved directly from your former plan into an IRA. Making any allowable contributions to your IRA is also a nontaxable event.

View this video for more information about Form 5498.

Reporting Required Minimum Distributions (RMDs)

An account owner must take the first required minimum distribution (RMD) for the year in which he or she turns 72. The CARES Act may have made reporting RMDs different for you this year.

If you waived your RMD in 2020:

With the CARES Act passed in March 2020, eligible individuals were given the option to waive their RMD in 2020 and take continue taking them in the following year. This also includes beneficiaries of inherited IRAs that are subject to the “five year rule.”

If you took and then paid back your RMD in 2020:

If you chose to pay back your RMD to the IRA through a tax-free rollover, your Form 1099-R will show the original distribution, but won’t account for the rollover of the funds back into the account.

Not to worry – rollovers are generally not reflected on Form 1099-R. When filing your 2020 taxes, you should include the total amount of IRA distributions shown on your 1099-R, and then subtract the amount you paid back to report the remainder.

If you took an RMD in 2020:

If you did take an RMD in 2020 and did not pay it back, this distribution would be reported on your 1099-R.

For all subsequent years after you take your first RMD, the account owner must take the RMD by December 31.

If you turned 72 in the reported tax year and have waited to take your first RMD, you can still take it up until April 1, but you would not receive the 1099-R until the following tax year.

If you’ve elected to wait, just remember, you will have two RMDs to report for the following year’s taxes. Also remember, after the first year, you must take all RMDs before December 31.

Reporting CARES Act Withdrawals

Additionally, the CARES Act allowed for withdrawals up to $100,000 to be penalty-free if taken before December 31, 2020.

The IRS states: “A coronavirus-related distribution should be reported on your individual federal income tax return for 2020. You must include the taxable portion of the distribution in income ratably over the 3-year period – 2020, 2021, and 2022 – unless you elect to include the entire amount in income in 2020.”

If the funds are returned to the account in three years, no penalties or taxes would be owned.

Additional Resources

A new benefit of being a Millennium Trust client is that you can now access your tax forms online via the MTC Investment Platform. Log in to your account and head over to the Account Details tab to download your necessary forms.

You can also view the Tax Reporting Guide on our website to help you understand tax reporting implications. Keep in mind, you should always consult your tax professional for specific information regarding your tax situation.

Visit our Tax Center for more helpful resources, like videos, IRS tax forms, important tax dates, FAQs and more.

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The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not offer or sell investments or provide investment, legal or tax advice.

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