Yes, inherited 1099-R forms do have special treatment; TurboTax will ask you additional questions about the decedent, their 1099-R plan contributions, their age, which consequentially determine how much of the inherited distribution is taxed on your tax return.
1099-R inheritance tax treatment depends on whether it was inherited from a spouse or not. You may have to pay income tax on the distribution, based on the type of plan and the manner in which contributions were made by the decedent. While the form 1099-R has a lot of information, you may need more data to determine taxable portion of the distribution. For example, if the 1099-R is for an IRA, you need to know the basis - the amount of after-tax contributions to the account. If no after-taxes contributions were made (or you don't know it and can't find the information) the entire amount is taxable. If you inherited a traditional IRA from your spouse, you have a choice to treat it as your own or treat yourself as a beneficiary. When the 1099-R is from a non-spouse, you don't have that choice. You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries. If the decedent was required to take RMD (required minimum distribution) - so are you.
The above is just general outline for inherited 1099-R. Regardless if the amount is taxable or not, you still have to report it on your tax return. When going through TurboTax, be sure to enter the form 1099-R exactly as it appears and answer follow up questions. You'll be asked who it is inherited from, decedent's age and basis (if applicable) and RMD questions. Your answers will determine it's tax treatment.
To enter 1099-R in TurboTax:
- Federal Taxes
- Wages and Income
- Scroll down to Retirement
Plans and Social Security
- Select IRA, 401(k), Pension Plans (1099-R)
