Assumed vs Inherited IRAs

[eyohonjr]

My mother assumed a traditional IRA from her deceased husband. She assumed the IRA in 2025. Her husband died in 2024. She took an RMD from the assumed IRA in 2025. 

When putting the 1099-R into TurboTax Desktop, there is an interview question "Do any of these situations apply to you?" There is a box titled "I inherited this IRA". If I check it, it looks like the distribution is not taxed. If I don't check it, the distribution seems to be taxed. 

Researching with IRS - I think the distribution should be taxed as ordinary income. 

Does anyone now what the "I inherited this IRA" box means or when it is used?

Thanks. 

Eddie.

[VolvoGirl]

What code is in box 7?   When my husband died in 2023 his IRA was moved into my IRA in only my name.   I don’t get the inherited question.   It is now mine, I don’t click on Inherited.   Only a spouse can assume it in their own name.   @dmertz 

[eyohonjr]

The distribution code in box 7 is 7 - normal distribution. 

I think an assumed IRA is taxes distributions. 

I wonder if it were inherited, would the distribution be taxed?

when I check that box, I don’t think the distribution is taxed unless it corrects later in the program. 

[dmertz]

Because this distribution came from the IRA after your mother as the surviving spouse assumed the IRA, the IRA is no longer an inherited IRA.  Do not mark the box labeled "I inherited this IRA."  Unless your mother has basis in nondeductible traditional IRA contributions, the entire distribution is taxable.

(I have no idea why marking the "I inherited this IRA" box would make TurboTax think that the distribution is nontaxable as long as box 2a has the same amount as is in box 1, which should always be the case if the code in box 7 is 7 and the IRA/SEP/SIMPLE box is marked.)

[eyohonjr]

Yes, box 2a is the same as box 1 indicating the distribution is taxable. Box 7 is 7 (Normal Distribution) and the IRA/SEP/SIMPLE box is marked. 

However, box 2b is checked as well (Taxable amount not determined). Could box 2b be checked since she made a qualified charitable distribution? This means the total in box 2b isn't taxed since the QCD is subtracted from the taxable amount. 

I think you are right - the distribution is taxed. I have no idea why checking the inherited box would cause TurboTax to think the distribution isn't taxable. There must be some special case where an inherited distribution is not taxable. I was worried that I screwed up when I told her to assume the Traditional IRA as opposed to inheriting the Traditional IRA. Vanguard gave me both options and didn't mention an inherited traditional IRA could be tax exempt. Still, I don't see any circumstance where distributions from an inherited traditional IRA or an assumed traditional IRA would be tax free. 

Eddie.

[VolvoGirl]

Yes.  I also have Vanguard IRA also and make QCD distributions.  A QCD is not taxable and does fulfill the RMD requirement.  I do a  QCD every year.

If you are 70 1/2 and made a QCD distribution from your Traditional IRA account…..it is not taxable.   It will be entered as a IRA distribution on 1040 Line 4a but will as show zero taxable with QCD showing up by line 4b.  It is not added on to Schedule A so you don’t need to itemize deductions to get credit for it.   A QCD can only be made from an IRA.  It can cover your RMD amount.

[dmertz]

"Could box 2b be checked since she made a qualified charitable distribution?"

That has nothing to do with a QCD.  Box 2b is required to be marked on any Form 1099-R with code 1, 2 or 7 in box 7 and the IRA/SEP/SIMPLE box marked because the payer has no way to know if you have basis in nondeductible traditional IRA contributions that would reduce the taxable amount, calculated on Form 8606 Part I.  (Note that because QCDs can come only from otherwise taxable funds in the IRA, QCDs are not reported on Form 8606.  When you indicate to TurboTax the amount of the QCD, TurboTax automatically excludes that amount from taxable income.)