1099-R from bank IRA

[collinsb032]

Hello,

I am doing a Trust 1041 and read about the Trust earning income and that is where I get confused.

My in-laws are deceased and the 2 IRAs they had at the bank had their Trust as the beneficiary. We transferred both IRAs to the Trust fund withholding taxes on both. Is this considered income to the Trust or am I only reporting the taxes on the Trust?

Thank you.

[MarilynG1]

Depending on the Codes in Box 7 of the 1099-R, you may be reporting a Rollover with Taxes Withheld of your transferred IRA's.   Is the 1099-R in your name or the trust's name?

Either way it is taxable income, either to you on your tax return, or to the trust, which the trust would then pass on to the beneficiaries of the trust on a K-1 form that goes on the beneficiaries tax return. 

If the income belongs to the trust, it can be entered as Other Income and  any tax paid as Other Tax Payments. 

Here's more info on 1099-R Distributions in a Trust that may help you. 

[collinsb032]

The Recipient's name is the name of the family trust on both 1099-R forms. Box 7 (Distribution code) is 4 (death) on both as they had both passed when we transferred the IRA amounts to the Trust.

I still don't understand HOW it is earned income to the Trust. The beneficiary of both IRAs was the family trust. I can understand earned income being rental payments, interest earned, or assets sold. I know they would claim RMD each year for the IRAs, but I was under the impression a Trust limits taxation on assets.

Thanks again.

[collinsb032]

I also consider this a complex trust as there are no instructions for annual distribution to the beneficiaries in the trust.

[ThomasM125]

The code 4 in box 7 means the distribution is taxable. When the funds were contributed to the retirement account, they were either deducted from income on the owner's tax return, or represented wage income that was not taxed. So, that income has never been taxed, so it is being taxed now that it has been withdrawn from the pension.

It will be added to the trust income and to the extent it is not distributed to the trust beneficiaries, it will be taxable trust income.