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IRA'S

An IRA is an INDIVIDUAL RETIREM

provides income tax advantages t

A. There are six different types of IRAs:

1TRADITIONAL IRA

A Traditional IRA is a retirement s

retirement by contributing a certa

on a tax-deferred basis. This mea

resulting in a compounding effect

when the owner retires, when the

IRA assets.

If the Traditional IRA is not alread

generally April 15 of the year follo

not apply to IRAs. An important be

deductible and earnings have the

income may contribute up to $4,0

make catch-up contributions.

2EDUCATION IRAYou can put away up to $500 per

preferential tax treatment upon di

expenses. These plans are not ver

the amount they allow you to cont

that would qualify. Your IRA financ

savings plan you should invest in.

3

A SEP (Simplified Employee Pensi

reporting requirements simpler th

a good fit for sole proprietors and

these plans for their own benefit a

plans due to the fact that they ha

which are tax deductible to emplo

is withdrawn from the IRA. This is

SEP IRA - Simplified Employee Pension

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for SEPs. Currently, contributions

whichever is less. SEP participants

an IRA. The employer has until its

SEP contributions. In order for a b

Application and an IRS Form 5305

4SIMPLE IRA

The Savings Incentive Match Plan

sponsored retirement plan. The SI

proprietorships, partnerships, and

limitation. Certain administrative r

IRA plan to stay in compliance wit

plan, but it is quickly becoming ve

5ROTH IRA

A Roth IRA is a retirement plan wh

certain amount each year. Interet

basis, but also are tax-free if distri

interest earnings accrue on intere

larger account balances.

Who is eligible for a self directed

Anyone who has earned income athe Traditional IRA, the Roth IRA h

contribute as long as they like. In

Income Limits for the Roth IRA: Yo

and your modified adjusted gross

married and file a joint return, and

separate return). The amount you

adjusted gross income is between

are married and file a joint return,

spouse and file a separate return)

6Spousal IRA

Spousal IRAs are designed to help

traditional or Roth IRA. Couples ca

year ($10,000 if they are both ove

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earned income.)

FORM 1099R

distributions made to the holder o

Box Explanations

1Gross distribution Shows the total amount you recei

amount may have been a direct r

to a Roth IRA, a recharacterized I

have received it as periodic paym

or as a total distribution.

2aTaxable amount This part of the distribution is gen

is no entry in this box, the payer

needed to figure the taxable amo

box 2b should be checked.

2bTaxable amount If the first box is checked, the pay

not determined determine the taxable amount, an

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

in box 2a) plan and were born before Januar

beneficiary of someone born befo

be able to elect to treat this amou

4972 (not on Schedule D (Form 10

An Internal Revenue Service (IRS)

from annuities, profit-sharing planfollowing are some of the items in

year, the amount of the distributio

contributions made to the invest

The plan custodian sends the for

more from the plan in a given yea

distribution was made. In some ca

her tax return. The plan owner, th

receive a copy of the form.

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4Federal income tax Shows federal income tax withhel

withheld on your income tax return as tax

an amount (other than zero), atta

5Employee contributions Generally, this shows the employe/Designated Roth contract (after-tax contributions),

contributions or year; the portion that is your basis

insurance premiums the part of premiums paid on com

contracts recovered tax free; or th

charitable gift annuity.

6Net unrealized If you received a lump-sum distrib

appreciation in plan that includes securities of th

employers securities unrealized appreciation (NUA) (an

securities while in the trust) is tax

securities unless you choose to in

this year.

7Distribution The following codes identify the di

code(s) For more information on these dis

1Early distribution, no known exage 59 ).

2Early distribution, exception ap

3Disability.

4Death.

5Prohibited transaction.

6Section 1035 exchange (a tax-

annuity, or endowment contracts)

7Normal distribution.

8Excess contributions plus earni

earnings) taxable in 2007.

9Cost of current life insurance p

AMay be eligible for 10-year tax

BDesignated Roth account distri

DExcess contributions plus earn

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in 2005

EExcess annual additions under

excess amounts under section 40

FCharitable gift annuity.

GDirect rollover to a qualified plgovernmental 457(b) plan, or an I

JEarly distribution from a Roth I

most cases, under age 59 ).

LLoans treated as distributions.

NRecharacterized IRA contributi

recharacterized in 2007.

PExcess contributions plus earni

in 2006.

QQualified distribution from a R

RRecharacterized IRA contributi

recharacterized in 2007.

SEarly distribution from a SIMPL

known exception (under age 59

TRoth IRA distribution, exceptio

If the IRA/SEP/SIMPLE box is check

traditional IRA, SEP, or SIMPLE dis

8Other If you received an annuity contrac

distribution, the value of the contr

when you receive it and should no

2a. When you receive periodic pa

contract, they are taxable at that

9aYour percentage of total If a total distribution was made to

distribution person, the percentage you receiv

9bTotal employee For a life annuity from a qualified

contributions plan (with after-tax contributions),

the employees total investment i

compute the taxable part of the di

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0 to 15 State Details If state or local income tax was wi

distribution, boxes 12 and 15 may

distribution subject to state and/o

Guide to Distri

Distribution Codes Explanations

1Early distribution, no known exception.

Use Code 1 only if the employee/t

and you do not know if any of the

2, 3, or 4 apply. Use Code 1 even i

medical expenses, health insuran

education expenses, a first-time h

reservist distribution under sectio

Code 1 must also be used even if

she modifies a series of substanti

section 72(q), (t), or (v) prior to th

2Early distribution, exception applies.

Use Code 2 only if the employee/t

and the distribution is: A Roth IRA conversion (an IRA c

A distribution made from a quali

of an IRS levy under section 6331.

A section 457(b) plan distributio

additional 10% tax. But see Sectio

R-10 for information on distributio

additional tax.

A distribution from a qualified re

service where the taxpayer has re

A distribution from a governmen

safety employee after separation

reached age 50.

A distribution that is part of a se

payments as described in section

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A distribution from a governmen

long-term care insurance premiu

under section 402(l).

Any other distribution subject to

(t), or (v) that is not required to b

3Disability.

For these purposes, see section 7

4Death.

Use Code 4 regardless of the age

indicate payment to a decedents

trust. Also use it for death benefit

not made as part of a pension, pr

5Prohibited transaction.

Use Code 5 if there was a prohibit

Code 5 means the account is no l

6Section 1035 exchange.

Use Code 6 to indicate the tax-fre

annuity, or endowment contracts

7Normal distribution.

Use Code 7: (a) for a normal distri

traditional IRA, section 401(k), or

taxpayer is at least age 591/2, (b)

reconversion if the participant is a

distribution from a life insurance,

for reporting income from a failed

sections 7702(g) and (h). See Rev

Code 7 with Code A, if applicable.

code applies. Do not use Code 7 f

Note: Code 1 must be used even i

or she modifies a series of substa

under section 72(q), (t), or (v) prio

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NT ACCOUNT. An IRA is a personal savings plan that

o individuals saving money for retirement purposes

vings plan that allows people who are eligible to save for

in amount each year. The interest earned in a Traditional IRA grow

s that the Traditional IRA owner doesn't pay taxes until the amount

and larger balances. Ideally, amounts are distributed from the IRA

person is in a lower tax bracket, which results in lower taxes on the

opened, it must be opened by your tax filing due date, which is

wing the year to which the contribution applies. Tax Extensions do

nefit to a Traditional IRA is that contributions can be tax

opportunity to grow tax-deferred. Individuals who have earned

00 for the 2006 tax year. Also, earners age 50 and over can also

ear into an education IRA, the money grows tax-free and has

stribution to the beneficiary who uses it for authorized education

y common in that they restrict who can make contributions to them,

ribue each year, and the limits on the type of education expenses

ial planner should be able to help you in firguring out what IRA

n) IRA is an employee benefit plan with compliance and

n those for qualified plans. For that reason, SEP IRAs are generally

small companies (under 100 employees). Sole proprietors may start

lso. SEP IRA's are sometimes used in place of Keogh retirement

e fewer administrative and tax filing requirements. Contributions,

yers, must be made to IRAs because IRAs are the funding vehicle

an important benefit because interest accrues on top of interest,

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re limited to 25% of adjusted gross income or $41,000,

can contribute up to $4,000 or $4.500 if over 50 years of age, to

tax filing date (including extensions) for its business to make any

siness to open up a SEP IRA you must complete an IRA

SEP.

for employees (SIMPLE) IRA plan, is an IRA based employer

MPLE IRA can be started by any business, including sole

corporations. However, the business must meet the 100 employee

equirements must be followed every year, in order for the SIMPLE

regulatory requirements. The SIMPLE IRA is a fairly new IRA

ry popular.

ich lets eligible individuals save for retirement by contributing a

t earnings on investments in a Roth IRA grow on a tax-deferred

butions are qualified. This is a very important feature, because as

t earnings, the result is a comounding effect and therefore much

oth IRA?

d falls within the income limits can establish a Roth IRA. Unlikeas no age limit for contributions, so individuals can continue to

Traditional IRA, individuals can only contribute until age 70 1/2.

u may contribute to a Roth IRA if you have taxable compensation

income or MAGI is less than $110,000 ($160,000 if you are

$10,000 if you are married, lived with your spouse and file a

may contribute to a Roth IRA is gradually less if your modified

$95,000 and $110,000 (between $150,000 and $160,000 if you

and between $0 and $10,000 if you are married, lived with your

.

non-working spouses save for retirement by investing in a

n contribute up to $8,000 to either type of plan for the 2006 tax

r age 50, as long as the total IRA contribution is less than their

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f the plan.

ed this year. The

llover, a transfer or conversion

A contribution; or you may

nts, as nonperiodic payments,

rally taxable. If there

ay not have all the facts

nt. In that case, the first box in

er was unable to

d box 2a should be blank.

ution from a qualified

2, 1936 (or you are the

e January 2, 1936), you may

nt as a capital gain on Form

40)).

form with which an individual reports his or her distributions

s, retirement plans, IRAs, insurance contracts and/or pensions. Theluded on the form: the gross distribution paid during the given tax

n that is taxable, the federal income tax that has been withheld, the

ent or premiums paid, and a code that represents the type of

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

r. The form is mailed to recipients by January 31 of the year after the

ses, the individual needs to attach a copy of Form 1099-R to his or

IRS and the municipal or state tax department (if applicable) all

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. Include this amount

ithheld, and if box 4 shows

h Copy B to your return.

es investment in theif any, recovered tax free this

in a designated Roth account;

mercial annuities or insurance

e nontaxable part of a

ution from a qualified

employers company, the net

increase in value of such

d only when you sell the

lude it in your gross income

stribution you received.

ributions,

ception (in most cases, under

plies (under age 59 ).

ree exchange of life insurance,

.

ngs/excess deferrals (and/or

rotection.

option (see Form 4972).

bution.

ings/excess deferrals taxable

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section 415 and certain

(b) plans.

n, a 403(b) plan, aA.

A, no known exception (in

n made for 2007 and

ngs/excess deferrals taxable

th IRA.

n made in 2006 and

E IRA in first 2 years, no

).

applies.

ed, you have received a

ribution.

t as part of a

act is shown. It is not taxable

t be included in boxes 1 and

ments from the annuity

ime.

more than one

ed is shown.

lan or from a 403(b)

an amount may be shown for

the contract. It is used to

stribution.

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thheld from the

show the part of the

local tax.

ution Codes

xpayer has not reached age 591/2

exceptions under Distribution Code

if the distribution is made for

e premiums, qualified higher

ome purchase, or a qualified

72(t)(2)(B), (D), (E), (F), or (G).

taxpayer is 591/2 or older and he or

lly equal periodic payments under

e end of the 5-year period.

xpayer has not reached age 591/2

nverted to a Roth IRA).

fied retirement plan or IRA because

that is not subject to the

n 457(b) plan distributions on page

ns that may be subject to the 10%

tirement plan after separation from

ached age 55.

tal defined benefit plan to a public

rom service where the taxpayer has

ries of substantially equal periodic

72(q), (t), or (v).

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tal plan for the payment of health or

s for a retired public safety officer

an exception under section 72(q),

reported using Code 1, 3, or 4.

(m)(7).

f the employee/taxpayer to

beneficiary, including an estate or

payments made by an employer but

fit-sharing, or retirement plan.

d (improper) use of the account. None

nger an IRA.

exchange of life insurance,

nder section 1035.

bution from a plan, including a A

ection 403(b) plan, if the employee/

for a Roth IRA conversion or

t least age 591/2, and (c) to report a

nnuity, or endowment contract and

life insurance contract under

. Rul. 91-17, 1991-1 C.B. 190. Use

Generally, use Code 7 if no other

r a Roth IRA.

a taxpayer is 591/2 or older and he

tially equal periodic payments

r to the end of the 5-year period.

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nings) taxable in 2007

under section 408(d)(4), unless

for corrective distributions of

ions, and excess aggregatepplies. See Corrective

Revocation or Account Closure on

option (see Form 4972).

bution.

ings/excess deferrals taxable

section 415 and certain

(b) plans.

n, a 403(b) plan, a

A.

A, no known exception (in

n made for 2007 and

ngs/excess deferrals taxable

th IRA.

n made in 2006 and

E IRA in first 2 years, no

).

applies.

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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

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FORM 1099R

2 - 1099-R

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Sample 1

Sample 2

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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

5

W6/IRS N/A 66

6

W6/IRS N/A 677 Distribution code(s) W6/IRS N/A 68

X if IRA Distribution W3/W6/IRS 92 69

8 Others W6/IRS N/A 70

9a 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

Employee contributions/Designated Roth contributionsor insurance premiums

Net unrealized appreciation in

employers securities

Your percentage of totaldistribution.

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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-1

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-1

Schedule D 1040 Line 13

1040 Line 64

Schedule A Line 5

Schedule A Line 5

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6a

6b

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69

70&71

72

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73

74-78