1099-R Rollover

[mmerica]

My mother died in 2019. She had an IRA which I inherited and rolled over to an IRA. I received a 1099-R from the distributing bank. When I enter the 1099-R in Turbo Tax it says I own taxes even though it was rolled over to an IRA in my name. Why is it doing this, how do I fix it as I obviously do not need to pay taxes.

[dmertz]

The law does not permit you to roll over a distribution paid to you as a non-spouse beneficiary, so TurboTax does not allow you to indicate that it was rolled over.

If what actually occurred was a trustee-to-trustee transfer to an inherited IRA indicating your mother as teh decedent and you as the beneficiary, no Form 1099-R should have been issued because a trustee-to-trustee transfer is neither a distribution nor a rollover; you'll need to get a corrected Form 1099-R showing that $0 was distributed.  However, if the money was paid to you personally, the Form 1099-R is correct, the distribution is taxable to you and your deposit of that money into any IRA is an excess contribution subject to penalty (at least to the extent that it exceeds what you are eligible to contribute as a new contribution for the year to an IRA in your own name, not to an inherited IRA for your benefit, which you would need to be reported under Traditional and Roth IRA Contributions).  If this has resulted in an excess contribution, you have until the due date of your tax return to obtain an explicit return of excess contribution from the IRA; contact the IRA custodian.

[kewh]

The reply from dmertz doesn't apply to a non-spouse beneficiary's direct rollover to an Inherited IRA.

I did a direct rollover of my father's 401k to an Inherited IRA, permissible by law. I received a 1099-R for the rollover amount, and a separate 1099-R for the annual RMD (required minimum distribution). The payer confirmed that a 1099-R must be issued for any and all distributions, whether the money is paid to another qualifying plan or received personally. The code in Box 7 indicates the type of distribution, which determines whether or not the event was taxable. (My rollover 1099-R, Box 7 has code 4G, indicating a direct roll-over to a qualified plan, and Box 2a shows no taxable amount.)

TurboTax prompts are confusing. The 2019 tax year software only has options to indicate rollovers to a Roth 401k or Roth IRA. (An Inherited IRA has a different tax treatment.) I answered "No" to this being a Roth 401k or a Roth IRA, and "No" to the question: "Was this withdrawal an RMD?" The answer "No" is shown as "not common."  I doubt Inherited IRAs are uncommon, so I've provided this response to help other, potentially confused users.

(Note: The second 1099-R, for my annual RMD, is a "Yes" to the RMD withdrawal question, and correctly has a taxable amount in box 2a.)

[macuser_22]

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@kewh wrote:

The reply from dmertz doesn't apply to a non-spouse beneficiary's direct rollover to an Inherited IRA.

I did a direct rollover of my father's 401k to an Inherited IRA, permissible by law. I received a 1099-R for the rollover amount, and a separate 1099-R for the annual RMD (required minimum distribution). The payer confirmed that a 1099-R must be issued for any and all distributions, whether the money is paid to another qualifying plan or received personally. The code in Box 7 indicates the type of distribution, which determines whether or not the event was taxable. (My rollover 1099-R, Box 7 has code 4G, indicating a direct roll-over to a qualified plan, and Box 2a shows no taxable amount.)

TurboTax prompts are confusing. The 2019 tax year software only has options to indicate rollovers to a Roth 401k or Roth IRA. (An Inherited IRA has a different tax treatment.) I answered "No" to this being a Roth 401k or a Roth IRA, and "No" to the question: "Was this withdrawal an RMD?" The answer "No" is shown as "not common."  I doubt Inherited IRAs are uncommon, so I've provided this response to help other, potentially confused users.

(Note: The second 1099-R, for my annual RMD, is a "Yes" to the RMD withdrawal question, and correctly has a taxable amount in box 2a.)

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dmertz answer was correct and refereed to an inherited Traditional non-spousal *IRA*, not a 401(k).   The code 4G indicates that yours is was rolled into an inherited Traditional IRA that should remain in the name if the deceased with you as benificuary.

It is not necessary for the interview to ask additional questions because there are only 3 possibilities,  A 401(k) Roth, a Roth IRA, or a Traditional IRA.  If the answer to the first 2 are no the  no further question is necessary.

[dmertz]

The original question and my answer was in regard to an inherited IRA, not an inherited account in a qualified retirement plan; a distribution from an inherited IRA to a non-spouse beneficiary is indeed not permitted to be rolled over (although Congress has been discussing possible changes to the law to allow such rollovers).

kewh, the code 4G in your case indicates that the rollover was from a qualified retirement plan like a 401(k), not a distribution from an IRA.  Such a rollover by a non-spouse designated beneficiary is permitted, but only as a direct rollover (indicated by the code G in this case).

[JLP1976]

I took an RMD in January 2020 for a non-spouse inherited IRA.  Subsequently, under the provisions of the CARES act, I reversed the RMD in July 2020.  I have now received the 1099-R showing the distribution as being fully taxable.  My understanding is that I should now show the same amount as a rollover back into the IRA, as the IRS will treat this reversal as a 60 days rollover.  My problem is that TurboTax does not provide a rollover option for non-spouse inherited IRA, presumably because they are not allowed under normal circumstances.  Is there a work around for this special case allowed by the CARES act?

[DawnC]

Since RMDs were waived for 2020, no part of the distribution was actually an RMD even though it was taken with the intention of satisfying an RMD.  In TurboTax, indicate that the distribution was not an RMD.  Indicate that you moved the money to another retirement account (or returned it to the same account), then indicate how much of the distribution you returned to the IRA.  TurboTax will include the entire gross amount on Form 1040 line 4a but exclude the amount rolled over from the amount on line 4b.  TurboTax will also include the word ROLLOVER next to the line.

If you did not substitute other funds for the amount withheld for taxes so as to complete the rollover of the entire gross amount of the distribution, the amount of the withholding remains distributed, not rolled over, and subject to tax; it's too late to complete a rollover of that portion of the distribution.  If the overall tax liability determined on your tax return is less than your total withholding, including the amount withheld from the IRA distribution, you'll get a tax refund.

@JLP1976

[macuser_22]

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@JLP1976 wrote:

I took an RMD in January 2020 for a non-spouse inherited IRA.  Subsequently, under the provisions of the CARES act, I reversed the RMD in July 2020.  I have now received the 1099-R showing the distribution as being fully taxable.  My understanding is that I should now show the same amount as a rollover back into the IRA, as the IRS will treat this reversal as a 60 days rollover.  My problem is that TurboTax does not provide a rollover option for non-spouse inherited IRA, presumably because they are not allowed under normal circumstances.  Is there a work around for this special case allowed by the CARES act?

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When you enter the 1099-R and after the "Tall us when this person was born" screen, it will ask if it was a RMD.  Check the box that says "No - none of this was a RMD" and the rollover screen should come up.

For 2020 there were NO RMD's at all so it was not an RMD and can be rolled over.

[JLP1976]

Thanks for the prompt reply, DawnC.  I don't know how to do what you outlined.  When I indicate that the I inherited the ira, the software does not provide any means to indicate a rollover.  Am I missing something?

[JLP1976]

I have tried that.  At the "Who did you inherit this IRA from?" screen, I selected "Someone else who passed away" and hit continue.  Next screen:  Did you have nondeductible contributions for this IRA? I answered: No.  Next screen:  Deceased was born before Jul 1, 1948.  Next screen:  None of this withdrawal was a RMD.  Next screen:  Review you 1099-R info (main screen).

[macuser_22]

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@JLP1976 wrote:

Thanks for the prompt reply, DawnC.  I don't know how to do what you outlined.  When I indicate that the I inherited the ira, the software does not provide any means to indicate a rollover.  Am I missing something?

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The screen after the RMD screen should look like this.

[JLP1976]

I am using the online version, and my screen does not look like this.  The top part is similar.  My choices are This entire distribution was a RMD, Only part of this distribution was a RMD, None of tis withdrawal was a RMD.  There is no parenthetical (This is not common.).  I don't see the lower section at all.  When I hit continue, I am taken back to the main screen.

[macuser_22]

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@JLP1976 wrote:

I am using the online version, and my screen does not look like this.  The top part is similar.  My choices are This entire distribution was a RMD, Only part of this distribution was a RMD, None of tis withdrawal was a RMD.  There is no parenthetical (This is not common.).  I don't see the lower section at all.  When I hit continue, I am taken back to the main screen.

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I just tested this in the online version and you are correct - the online version does not offer that screen.  I can only suggest contacting customer support, but do  not be surprised if they have no idea.

I don't know what the solution is.

BTW: the rollover can ONLY be back to the same IRA that the money came from since you are just undoing the RMD distribution.

@DawnC - perhaps you can pass this on or offer a solution for online users.

[DawnC]

Will do - thank you!  @macuser_22

[JLP1976]

@macuser_22  thanks for confirming that I am not losing my mind.  I will contact Customer Support.  For reference, were the screens shots you posted from the desktop version?  Also, Windows or Mac?

Also, I did put the money back where it came from.