Helping my dad w his taxes (usually for my parents but mom passed away) - he cashed out her IRA, does he have to pay tax or can it be excluded as an inheritance?

[haolam]

They both were 75+ in 2023. My dad received a 1099-R with Distribution code of 7 under box 7 and Total Distribution checked. I tried to choose inherited in the Turbo Tax desktop software but it didnt reduce the amount of tax owed.

[VolvoGirl · Accepted solution]

Sorry, he owes the tax on it.  If it would have been taxable to her then it is taxable to whoever receives it.  Non taxable inheritance would be like a bank account or cash.  

[Bsch4477]

The inherited IRA is taxed because the contributions were tax free. 

[dmertz · Accepted solution]

Code 7 indicates that the distribution was from his own IRA, not from an inherited IRA, so TurboTax really shouldn't even be asking if the distribution was from an inherited IRA.  It's his IRA even if his IRA was partially or fully funded by a rollover or transfer from his wife's IRA when she died.