by Barry C. Picker, CPA/PFS, CFP
© 1998, Barry C. Picker
With the changes made to the Roth IRA rules by the Technical Corrections included in the Internal Revenue Service Restructuring and Reform Act of 1998, taxpayers no longer needed to have two separate Roth IRA accounts. Prior to the changes, the IRS had strongly recommended that Conversion Roth accounts be kept separate from Contributory Roth IRA accounts. For some reason, the custodians had not gotten the message, and were still requiring two separate accounts.
One possibility for this may have had to do with pre-technical correction rules concerning the coding of 1099-R’s for Roth distributions. This has now been rectified by a new IRS Announcement.
The Announcement makes changes in the distribution codes for Roths on the Form 1099-R.
In the background portion of the announcement, it states that "the Service has concluded that code K, 'Distribution from a 1998 Roth conversion IRA in the first 5 years,' on the 1998 Form 1099-R may no longer serve its intended purpose". This Code K appears to have been the sticking point for the Roth IRA custodians. The Service also stated that a new code for recharacterizations is needed.
For the 1998 Form 1099-R, code K is now optional. Payers may use code J instead, for all Roth IRA and Roth conversion IRA distributions. Code K will be eliminated on the 1999 form. For 1999, code J will be changed to "Distribution from a Roth IRA" and will be used for any distribution from any type of Roth IRA account. In addition, for 1999 Code R will be added for recharacterizations.
Hopefully, this will now clear up any confusion and the custodians will permit
taxpayers to have just one Roth IRA account.
The Author:
Barry C. Picker is a Certified Public Accountant with the Personal Financial Specialist
designation, and a Certified Financial Planner. He runs his own accounting and financial
planning firm located in Brooklyn, NY, and is also a member of the NYS Society of CPAs
Estate Planning Committee. He has taught seminars and written articles on tax topics, and
has been quoted in various publications. In addition, he is part of a panel that answers
tax questions on America Online at keyword:TaxLogic. He can be reached at (718) 934-4300,
or via E-Mail at 72247.1302@compuserve.com.
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CHANGES TO CODES FOR ROTH IRAS ON FORM 1099-R
Communications Division
Items of Interest
Purpose
The purpose of this announcement is to advise payers making distributions from Roth IRAs of changes to the distributions codes on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
Background
The Internal Revenue Service Restructuring and Reform Act of 1998 (Public Law 105-206) amended Internal Revenue Code section 408A, dealing with Roth IRAs. Because of these amendments, the Service has concluded that code K, "Distribution from a 1998 Roth conversion IRA in the first 5 years," on the 1998 Form 1099-R may no longer serve its intended purpose. In addition, a new code for recharacterizations is needed.
1998 Form 1099-R Code K, to be used in box 7 on the 1998 Form 1099-R, is now optional. Payers may choose to use Code J in box 7 for all distributions from a Roth IRA or Roth conversion IRA. They will meet the requirements of Q/A-B-2 of Notice 98-49, 1998-38 I.R.B. 5, if they use Code J instead of Code K.
1999 Form 1099-R Code K will be eliminated on the 1999 Form 1099-R. Code J will be changed to "Distribution from a Roth IRA." Use Code J when reporting any distribution from a Roth IRA or Roth conversion IRA. New Code R, "Recharacterized IRA contribution," will be added to identify a recharacterization of an IRA contribution.