Complicated Rollover

Forum|Forum|3 years ago
March 2, 2023
1 reply
10 views

I have a complicated situation. I have an inherited IRA in funds that closed so I needed to roll it over. I attempted to get the brokerage to send a check to new new IRA brokerage and to roll it over into that account . Instead the brokerage sent me a check and I deposited that check into the new IRA account within 60 days.

Unfortunately, the brokerage that sent me the money withheld federal taxes. I went to a CPA and he told me that only the fed tax withheld amount is taxable since I rolled over the other amount into an IRA within 60 days.

The CPA said that I should fill out the 1099 in turbotax exactly as the document I received and find an entry that allows me to enter the dollar amount that was rolled over and the dollar amount that wasn't. Example: net distribution was $300,000 and they withheld $50,000 and sent me a check for $250,000. I want to report that I rolled over $250,000 and should only be taxed on the $50,000 amount. How do I make that entry into TurboTax? I thank you for your help.

dmertz

Level 15

Are you a spouse beneficiary or a non-spouse beneficiary?

dariowAuthor

Level 2

I am the son of the decedent.

dmertz

Level 15

I assume that the Form 1099-R that you received has code 4 in box 7. Unfortunately, an IRA inherited by a non-spouse beneficiary is only permitted to moved from one inherited IRA to another by nonreportable trustee-to-trustee transfer (which you attempted to get the old IRA custodian to do). Distribution and rollover is not permitted. This means that the entire distribution is taxable and the deposit into the new inherited IRA constitutes an excess contribution. The CPA you talked to should have known this. Because TurboTax knows that a code-4 Form 1099-R issued to a non-spouse beneficiary represents a distribution that is not eligible for rollover, TurboTax will not permit you to report the distribution as having been rolled over.

Had the check been made out to the receiving IRA, not to you personally, and the check was given to you simply to convey the check to the new custodian, this would have constituted a nonreportable trustee-to-trustee transfer, but in that case there would have been no tax withholding. The fact that taxes were withheld seems to imply that there was indeed a distribution from the original inherited IRA.

Congress has been discussing changing the tax code to permit rollovers of inherited IRAs by non-spouse beneficiaries, but that change hasn't happened.

(The only type of distribution and rollover permitted by a non-spouse beneficiary is a direct rollover from an employer plan like a 401(k) to an IRA, reported with codes 4 and G or 4 and H in box 7 of the Form 1099-R.)