Broker says no 1099-R's required on Inherited IRA transfer

[maglib]

Myself and my siblings inherited an IRA from a deceased aunt in 2023.  She was already taking RMD.

The broker set up each of our inherited IRA's.  Edward Jones  (EJ)is the original broker.

-A. One of us took a full distribution

-B. One transferred to another broker and took a full distribution

-C. One just transferred to a another broker

I thought :

A. should get a 1099-R from EJ with reportable death benefits paid 

B. should get a 2 1099-R/'s from EJ plus a 5498 from new broker and another 1099-R from new broker as they then distributed fund. EJ 1099-R for the Inherited IRA and another 1099-R for the transfer to new broker.

C. Should get a 1099-R from EJ and a 5498 from new broker.  EJ 1099-R for the inherited IRA  and another 1099-R for the transfer to the new broker.

B&C got 5498's from new brokers and A got a 1099-R from EJ for their payout,  B got a 1099-R only from their new broker.  C got no 1099-R's at all .  I think Edward Jones is wrong not sending 1099-R's to B &C.  

Am I correct that B & C should get 2 1099-R's from EJ, 1 under new laws on inherited IRA and another for their transfer of their accounts to new brokers?  or minimally a 5498 should have been created by EJ for the new inherited IRA?

Or since a broker to broker transfer a 2nd 1099R isn't needed as not taxable?

Thanks.  If an opinion is given, just let me know opinion.  If tax law supportable, please let me know that too.

APPRECIATE ALL OF YOUR RESPONSES, opinions and Facts.

Edward Jones broker  claim " No distributions from the account took place while here so no form was generated." 

Instructions from IRS: https://www.irs.gov/instructions/i1099r

[dmertz · Accepted solution]

Regarding your thoughts:

A. Correct, reportable on a code-4 Form 1099-R from EJ.

B.  Incorrect.  There is required to be no Form 1099-R for the transfer because the transfer is only permitted to be done by nonreportable transfer.  The distribution from the account at the new broker is reportable on a code-4 Form 1099-R from the new broker.

C.  Incorrect.  There is required to be no Form 1099-R for the transfer because the transfer is only permitted to be done by nonreportable transfer.

In other words, EJ and the new broker have done everything correctly and have given you correct information.

Had a Form 1099-R been issued for the movement of funds to the new broker, it would imply that there was a distribution from the account as EJ that was not permitted to be deposited into an account at the new broker because a non-spouse beneficiary is not permitted to roll over a distribution.  The trustee-to-trustee transfers that were performed were neither distributions nor rollovers.

[maglib]

@dmertz  Thank you so much.  So the IRS only knows there is an inherited IRA as the new broker reports the amount of the new IRA I own on 5498. 

So here's the last question.  I am disabled and do meet the rules of disabled. How does the IRS know either way that there is $ to be withdrawn or not withdrawn over 10 years? I know they delayed taking RMD again for 2023.

2023 RMD met by my 2 brothers, you answered that prior and to claim the RMD was met in full on my aunts return.

Now in 2024 as I'm the only one who is maintaining a inherited IRA of hers.  Since I'm disabled. New laws on distributions. What RMD would I need to take?  She was born in 1946 and already started her RMD. I was born in 1967 and am MFJ.  As we are in semi-retirement stage of life, and own rentals,  properly managing income and taxes is high up on my list. 

Thank you!!!!

[dmertz]

From IRS Pub 590-B:

You are considered disabled if you can furnish proof that you can't do any substantial gainful activity because of your physical or mental condition. A physician must determine that your condition can be expected to result in death or to be of long, continued, and indefinite duration.

The IRS generally doesn't do much to ensure that RMD obligations are met, particularly by beneficiaries.  If you meet the IRS definition of disabled (substantiated by a doctor's statement), you are an Eligible Designated Beneficiary and your RMDs are based on your life-expectancy from the Single Life Expectancy table based on your age in 2024, reduced by 1 each subsequent year.  For age 57, the life expectancy factor is 29.8, so your 2024 RMD is the 12/31/2023 balance divided by 29.8.  With that life-expectancy factor, you would not have to fully drain the inherited IRA until 2053.  (Successor beneficiaries continue your RMD schedule and would have to drain the inherited IRA by the end of the 10th year following the year of your death if that would mean draining it before 2053).

You would need to provide the doctor's statement to the IRS only if they ask for it or somehow challenge you failing to drain the inherited IRA by the end of the 10th year.

Of course you can always take out more than the RMD if it makes sense.  If you expect your marginal tax rate to remain the same in the future, you might want to take distributions that will result in topping out your current tax bracket since you could then invest the money outside the inherited IRA in capital investments where subsequent gains could be taxed at long-term capital gains rates rather than as ordinary income.