Form 1099-R Explained

Form Image

A -

Box 1: “Gross Distribution”Total amount paid to retiree in 2023 before taxes or other deductions – does not include health insurance reimbursements

B -

Box 2a: “Taxable Amount”Amount of 2023 pension distribution that is taxable
If BLANK = SDCERS is unable to determine how much of the distribution is taxable and “Taxable Amount Not Determined” should be checked in Box 2b, OR all of the distribution is non-taxable (e.g., disability)

C -

Box 2b: “Taxable Amount Not Determined”Only checked if member retired before 2003, which means SDCERS is unable to determine what portion of the distribution is taxable

Box 2b: "Total Distribution" → Checked if recipient received their final payment from that account in 2023

D -

Box 4: “Federal Income Tax Withheld”Total amount of federal tax withheld during 2023

E -

Box 5: “Employee Contributions/Designated Roth Contributions or Insurance Premiums”Amount of post-tax payments returned to the payee in 2023 – means the member made post-tax contributions to their account at some point during their career

F -

Box 7: “Distribution Codes”Most common distribution codes used by SDCERS:

1 = Early Distribution, no known exception (10% penalty applies)        7 = Normal Distribution
2 = Early Distribution, exception applies (no penalty)        E = Excess Contributions
3 = Disability
4 = Death
       G = Direct Rollover
       4G = Death Rollover

G -

Box 14: “State Tax Withheld”Total amount of California state income tax withheld in 2023 – SDCERS does not withhold state income taxes for any other states

H -

Box 15: “State/Payer’s State Number”Payer’s (SDCERS) state of residence – will always be CA, has nothing to do with state taxes or recipient’s state of residence

Frequently Asked Questions Regarding IRS Form 1099-R

Why did I receive multiple 1099-R statements from SDCERS?

Retirees will receive two statements for the year in which they turn age 59 ½. The IRS considers age 59 ½ to be the normal retirement age, and ordinarily imposes a penalty for any retirement distributions paid to people younger than that age. Because the SDCERS plan allows members to retire and receive pension benefits before age 59 ½, retirees under age 59 ½ receive a 1099-R with Box 7 listing Distribution Code 2, “Early Distribution with Exception.”

For those older than 59 ½, Box 7 lists Distribution Code 7, “Normal Distribution.” However, retirees who turned age 59 ½ during a tax year will receive two 1099 statements, one for each Distribution Code.
You will also receive two statements if you exit DROP, rollover all or a portion of your DROP account, and then continued receiving monthly pension benefit payments during the same calendar year. This is because the 1099 for the DROP rollover has a different Distribution Code than the 1099 for the regular monthly pension benefit payments.
You may also receive an additional 1099 if you are the beneficiary of an SDCERS death benefit during the same year you receive monthly pension benefits and/or DROP account funds.

Why is Box 2b checked indicating “Taxable Amount Not Determined”?

When members retired before 2003, SDCERS provided a manually prepared Retirement Certificate. This certificate explained the total pre-tax and post-tax contributions SDCERS received from the member. This certificate should be provided to the member’s tax accountant to determine the taxable portion of the benefit using applicable IRS amortization tax tables. If you are receiving payments because you are a continuance or have a domestic relations order, you will use the member’s Retirement Certificate. SDCERS cannot provide tax advice. Click here for a more detailed explanation of this issue. 

I live outside of California, so why does Box 15 say California? My accountant says this will cause a problem.

Box 15 represents SDCERS’ state of residence, not the 1099-R recipient’s state of residence. Box 15 will say California whether or not the payee lives in California because it is SDCERS’ state/tax number. 

Why did I receive both a 1099-R and W-2 from SDCERS?

If you received a 1099-R and a W-2 from SDCERS, that means you are participating in what is known as the Preservation of Benefits (“POB”) Plan. Internal Revenue Code section 415(b) sets a cap on the amount of your pension benefit that can come from the SDCERS trust fund in any given tax year. If your annual pension benefit exceeds section 415(b) limits, then the remainder of your pension benefit will be distributed from the POB Plan, which is simply a separate fund administered by SDCERS. Please note that this does not mean your pension benefit will be reduced – you will still receive the monthly benefit you are entitled to via a single direct deposit, only a portion of those funds will be distributed from a different source. If you are affected by section 415(b), you will receive a W-2 every year for the funds you received from the POB Plan, and a 1099-R for the funds you received from the SDCERS trust fund.