1099-R Mother's Pension Distribution upon Death

[Scott-G-]

My mother was collecting a county pension upon her death.  As a beneficiary, I received a inherited lump-sum distribution with FIT withheld.

Is the 1099-R reportable income for me?  I assumed Yes.

If so, is the withdrawal considered an RMD? All or Part?  I assumed Yes and All.

Base on the TurboTax results, the county did not withhold sufficient FIT.  It does not qualify for Special Averaging Method.  

So are there any other tax filing areas that I should take into consideration concerning this matter; such as inheritance taxes paid to the state, etc.

Thanks in advance.

[tmgreenberg]

Whose name and social security number are on the 1099-R? It is possible that this is reportable income only on your mother's final income tax return to be filed after her death.

[dmertz · Accepted solution]

If the Form 1099-R has your SSN on it, yes, this income to you and is reportable on your tax return.

You can indicate that this was all RMD and your entire RMD.  This will prevent TurboTax from calculating any penalty for failing to take an RMD.

Inheritance taxes have nothing to do with income taxes.

[Miles-Bayer]

When you receive a 1099-R for full dispursement of a deceased parent's pension plan, mark it as an RMD regardless of the amount, unless there is a code provided on the form.  If you're receiving a 1099-R for a deceased parent, chances are you are age 61+.  If so, the 1099-R will show you the total taxable amount.  Enter that when prompted.  I recently received a pension payment for my parent and all of the above were true.

Hopefully this offers more detailed information for you.  Cheers!

[MSH SR]

My wife and older sister had a younger sister who died without other heirs in 2019.  Her death benefit from her retirement plan was sent to my wife together with the 1099-R.  My wife then tranferred 50% of the benefit to her older sister, who reported it as income together with 50% of the income tax witheld.  How do we report that without having the entire distribution taxed to my wife?

[Critter-3]

The correct way should have been to have the custodian split the distribution and have issued each person a 1099-R reflecting their portion.  But now it is too late to get that corrected.  

If the sister reported 1/2 the  distribution AND 1/2 the withholding then her return will be audited so she should expect an IRS letter for the incorrect procedure. 

Since this was all reported in your wife's SS# then it should all be reported on her return. To find out how much the other sister's half cost you in taxes is simple ... just enter 1/2 the distribution and look at the tax liability and then add the total distribution and look at the tax liability again.  The difference would be the part the sister owes to you ... so let's say the total distribution was $20K ... and the tax with $10K on the return  is $500 and with $20K it is  $800 then the $300 difference is what the sister owes.   So a check for $10K - $300 should have been issued.

So what your wife should do is what I described in the last paragraph  ... put the entire distribution on your return along with any withholding.   And the sister really should amend the return before the IRS catches the error. 

[MSH SR]

Thanks, a follow-up:  The distribution was $63,204 and the income taxes witheld were $12,656.  My wife sent her sister a check for $31,602 and her sister reported that as income and half of the taxes witheld.  If we now include the entire amount of distributions on our return, we'd be reporting as income the sister's $31,602 as well our $31,602 share of the distribution.  Is there any way we can just report or include the net amount as income to us?

[macuser_22]

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@MSH SR wrote:

My wife and older sister had a younger sister who died without other heirs in 2019.  Her death benefit from her retirement plan was sent to my wife together with the 1099-R.  My wife then tranferred 50% of the benefit to her older sister, who reported it as income together with 50% of the income tax witheld.  How do we report that without having the entire distribution taxed to my wife?

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@MSH SR -Assuming that the 1099-R had a code "4" in box 7.   (If not 4 then it should have been distributed to the estate to be distributed with K-1 forms so the beneficiaries of the estate)

It depends on who was named as the benificuary of her retirement plan.    If your wife was the benificuary then she would receive the money and must pay the tax on it.   She can do anything she want to with the money including giving it to her sister.  

If there were multiple beneficiaries named on the retirement plan then the plan trustee was required by law to send a separate 1099-R to each named benificuary with only that beneficiary share.

[macuser_22]

As I stated below,  If your wife was was the sole benificuary of the *retirement account*  (which is separate to the beneficiary of the estate) then the entire amount is taxable income to your wife and not her sister.

Any money that your wife gave to her sister is a gift to the sister and not income to the sister.   Since the gift exceeds the $15,000 yearly limit then she need to file a 709 gift tax return (no tax will be due if her $11 million life time limit has not been exceeded).     If the sister reimbursed for the tax paid then that is also a non-reportable gift to your wife.