How do I show that my inherited IRA was funded by the deceased owner for more than 5 years, which makes distributions tax-free?

[AmyC]

The program should pick it up from your forms. It must have been a ROTH IRA. You should have box 7 code 4. A code Q would be perfect.

Here are the Inherited IRA rules.

[dmertz · Accepted solution]

As AmyC indicated, it would likely only be entirely tax-free if it was a distribution from an inherited Roth IRA.  When you enter a Form 1099-R for a distribution from an inherited Roth IRA (usually code T but sometimes code Q in box 7 of the Form 1099-R) and indicate that it was a distribution from an inherited account, TurboTax assumes that it is nontaxable (even if it isn't entirely not taxable due to not yet completing the 5-year qualification period, but in this case that's not an issue).

If the distribution was from an inherited traditional IRA, code 4 in box 7 of the Form 1099-R, unless you have tax records of the decedent showing that the decedent had basis in nondeductible traditional IRA contributions, the entire distribution is taxable.