The 2013 IRS Instructions for Forms 1099-R and 5498 have undergone additional revision and been reissued with a date of April 12, 2013, in the lower left corner of the first page. This April 12 revision provides new information about the new Distribution Code D. The description of Code D has been revised, and the revised chart of codes shows that code D may be used in combination with code 1, 2, 3, 4 or 7.
The April 12 revised instructions provide a new description of Distribution Code D, on page 1: “New distribution code. Use Distribution Code D to identify nonqualified annuity payments and distributions from life insurance contracts that may be subject to tax under section 1411. See Guide to Distribution Codes, later.”
This is a change from the earlier description, in the February 13 version of the 1099-R instructions, which was more limited in that it did not mention life insurance contracts. The February instructions said, “Use Distribution Code D to identify nonqualified annuity payments that may be subject to tax under section 1411. See Guide to Distribution Codes on page 16.”
Additional new clarification of Code D is presented in the chart of distribution codes in the April 12 version of Instructions: “D – Annuity payments from nonqualified annuities and distributions from life insurance contracts that may be subject to tax under section 1411. Use Code D for a distribution from any plan or arrangement not described in sections 401(a), 403(a), 403(b), 408, 408A, or 457(b). Used with code (if applicable) 1, 2, 3, 4 or 7.”
Note that only two alphanumeric codes may be used in Box 7 of the 1099-R. Thus where code D applies you could use, if applicable, D and 1 for an early distribution, no known exception; D and 2 for an early distribution where an exception applies; D and 3 for disability; D and 4 for death; or D and 7 for normal distribution. The combination of D with these numeric codes is a major change from the February 11 instructions which did not specify any numeric codes that could be used in combination with code D.
Clarification of another item has been added on page 6, where the new explanation of Transfers is as follows: “Generally, do not report a transfer between trustees or issuers that involves no payment or distribution of funds to the participant, including a trustee-to-trustee transfer from one IRA to another IRA, valid transfers from one section 403(b) plan in accordance with paragraphs 1 through 3 of Regulations section 1.403(b)-10(b), or for the purchase of permissive service credit under section 403(b)(13) or section 457(e)(17) in accordance with paragraph 4 of Regulations section 1.403(b)-10(b) and Regulations section 1.457- 10(b)(8). However, you must report: Recharacterized IRA contributions; Roth IRA conversions; and Direct rollovers from qualified plans, section 403(b) plans or governmental section 457(b) plans, including any direct rollovers from such plans that are qualified rollover contributions described in section 408A(e); Direct payments from IRAs to accepting employer plans.”
The February version of the instructions omitted the instruction to report direct payments from IRAs to accepting employer plans.
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