I inherited an IRA in 2015. The deceased did not take an RMD in 2014, so I had to take it in 2015. How do I enter this information in turbotax online?

[rnewhouse]

I guess I need to explain what happened to the IRS so they don't penalize me.

[dmertz]

In what year did the deceased die?

[rnewhouse]

@dmertz thanks for your reply. Died in 2014. I got all the RMDs in late 2015. The administrator just put them together in one 1099-R with code 4 ("death") but that doesn't seem correct. Do I need to report two separate 1099-R's for 2015, one of them with code "1" no explanation? Or perhaps I need to amend my 2014 returns? This is so confusing...

[dmertz · Accepted solution]

If you we the designated beneficiary, you actually inherited the IRA at the moment of the deceased owner's death.  Because the deceased had not completed the 2014 RMD, it became your responsibility to do so in 2014.  Since you did not do so until 2015, there was an excess accumulation in the account for 2014 that needed to be reported on your 2014 tax return.

Since you have now completed the 2014 RMD, you should amend your 2014 tax return to include Form 5329 requesting a waiver of the excess accumulation penalty for reasonable cause.  Given that it can be difficult to get TurboTax to create the necessary 2014 Form 1099-R under these circumstances, it will be easiest to do it manually.  You can get the 2014 Form 5329 and instructions here:

https://www.irs.gov/pub/irs-prior/f5329--2014.pdf

https://www.irs.gov/pub/irs-prior/i5329--2014.pdf

The instructions for requesting the waiver are at the end of page 7 of the instructions.  The IRS invariably grants the waiver under these circumstances and you'll hear nothing more about it, no additional tax or penalty due with the amendment.

A single code 4 2015 Form 1099-R for the combined distributions to you of the deceased's 2014 RMD and your 2015 RMD is correct.  Report the entire amount on your 2015 tax return by entering the Form 1099-R exactly as received and indicating that you satisfied the RMD for 2015.  You'll continue to receive code 4 Forms 1099-R each year for the RMD distributions from this IRA until this IRA is completely drained.

[rnewhouse]

AH, I see. Thanks! To be clear, I should report both distributions as 2015 income, and just submit the "sorry I missed the RMD" form for 2014 along with an explanation (and hopefully they won't send me a bill), right?

[fanfare]

I don't see how heir can be responsible for decedent's failure to take RMD.   At worst, the penalty would appear on the decedent's final tax return.

[dmertz]

renewhouse, yes, that is correct.  Since the distribution(s) were in 2015, they are reported on the 2015 tax return.

fanfare, the IRS has made is clear in IRS Pub 590 that the unsatisfied portion of the deceased's year-of-death RMD immediately becomes the responsibility of the beneficiaries upon the death of the decedent:

"If the owner died on or after the required beginning date, the IRA beneficiaries are responsible for figuring and distributing the owner's required minimum distribution in the year of death."

If the unsatisfied year-of-death RMD is not completed by the beneficiaries, the beneficiaries are the ones subject to the penalty for an excess accumulation.  Since it's impossible for the deceased to complete the RMD after death, it's the beneficiaries who fail to complete the RMD by year-end, not the deceased.

[kcj104]

so is it best to use the 5 year rule and take the entire amount to avoid the penalty?

[dmertz]

The 5-year rule is an option only if the deceased died before the deceased's Required Beginning Date for RMDs.