My brother's estate received a deposit from an IRA that my family didn't know existed and plan to place this deposit into the IRA that was setup by our probate lawyer. I received a 1099-R for that deposit with a distribution code of 4G in box 7.
How do I file a 1041 without having to pay taxes on income was supposed to rolled over to that IRA as TurboTax Business doesn't allow me to complete a section that includes a 1099-R?
This distribution cannot be rolled over to an inherited IRA. A 401(k) is permitted to be rolled over to an inherited IRA only for the benefit of an individual who is a designated beneficiary. An estate is not an individual and therefore cannot be a designated beneficiary. A 401(k) which has no designated beneficiary can only be distributed as income to the estate (code 4 on the Form 1099-R), not rolled over to an inherited IRA for the benefit of the estate (codes 4 and G on the Form 1099-R) or anyone else (although PLRs have allowed a surviving spouse to roll over to their own IRA under certain circumstances). Since the distribution was to the estate of the deceased, you must request that the payer issue a corrected Form 1099-R showing taxable amount in box 2a and showing only code 4 in box 7.
You should contact the probate lawyer and inform him or her of the error in attempting to set up an inherited IRA to receive this distribution.
Once the correct taxable amount shown in box 2a of a code 4 the Form 1099-R, see the following answer by tagteam describing how to report a distribution to the estate as Other Income on Form 1041 and possibly passed through as Distributable Net Income to the estate beneficiaries on Schedules K-1:
Confused ... the estate received the 1099-R distribution from the IRA? If so the Estate is not a person who can own/open IRA account ... not sure what the lawyer meant.
Is the rollover IRA set up in your name ?
The code 4G is two codes 4 and G, and they contradict each other.
Yes. The 1099-R with the distribution code of 4G was made out to the "Estate of W.... S....." As for the rollover IRA which was funded by other retirement accounts setup by my deceased brother, it is in my name name along with two other family members. Probate allowed for us to rollover those other accounts into one IRA. The proceeds from the IRA (unknown to us) with the previously mentioned 1099-R, is sitting in an account set up for my brother's estate. Hopefully this info will help you. Thank you for answering and please continue to question and advise.
Fanfare, Why do you say that they contradict each other? 4 is for Death & the G is for direct rollover. Could you explain as I'm not a tax person.
It is not permitted to Rollover an Inherited IRA into your own IRA, Instead, since you are not a spouse, the IRA must remain as an Inherited IRA until it is all withdrawn.
You may be confused as to whether the IRA is in your name, OR in your brother's name with you as beneficiary. The latter would be the correct title on the account.
Fanfare, I really do appreciate your answers. With that stated, all I trying to convey is that the bank that has the account in the name of "Estate of W... S...." is the beneficiary and has the deposit that requires the federal & state tax filings. Once again, the 1099-R is in the name of "Estate of W..... S......" I'm confused because the 1099-R has a distribution coded as "4G". With that code, the estate shouldn't have to pay taxes as it's been rolled over from one IRA to another IRA. When I attempted to use TurboTax Business to fill the federal return, there isn't a field to declare this deposit as a rollover. Advice on this message board stated to just list it as miscellaneous income. This results in a return that requires the estate to pay taxes that is at least 33% of the value of that deposit. In my mind, the 1099-R states that the income is a rollover and the estate shouldn't have to pay taxes, Unfortunately the entire value of that IRA was deposited into my brother's probate estate account instead of being rolled-over into the IRA that probate court gave us permission to do. Please advise & thank you.
PS. Fanfare, if I stated I was the beneficiary I'm sorry. I thought I stated that his estate went to probate as he didn't name anyone as his beneficiary. My family, with permission from probate court, just wanted to setup an IRA for use down the road for my still living brothers and me. All of the other 1099-R's (5 1099-R) from the other IRA's my deceased brother had, listed my name (court appointed executor) listed as the recipient.
I know that you did not say anything about a beneficiary.
Somebody has to pay the tax on that IRA if it was liquidated - that is implied by Code 4, and your further comments ie the bank now has the funds. (whose name is on THAT account?, it should again be the Estate)
The IRA was liquidated into the Estate, so the Estate owes the tax.
The code G would be incorrect and contradictory.
Get the idea that it would be a "rollover in your mind" out of your mind because that is not allowed.
Typically, on this forum the 1099-R superusers will tell you to ask for a corrected 1099-R,
Fanfare, thank you for your help. We let our probate lawyer handle everything and the other 1099-Rs listed the distributions code as "4" in my name. For whatever reason, the "found" IRA lists the recipient as the "estate of ....." and not me with a distribution code of 4G. For further clarification, can you explain why we didn't have to pay taxes on the other IRA 1099's that listed my name as recipient with a distribution code of 4?
You do have to pay taxes on IRA 1099's that list your name as recipient with a distribution code of 4.
Perhaps you answered the TurboTax followup questions incorrectly.
This distribution cannot be rolled over to an inherited IRA. A 401(k) is permitted to be rolled over to an inherited IRA only for the benefit of an individual who is a designated beneficiary. An estate is not an individual and therefore cannot be a designated beneficiary. A 401(k) which has no designated beneficiary can only be distributed as income to the estate (code 4 on the Form 1099-R), not rolled over to an inherited IRA for the benefit of the estate (codes 4 and G on the Form 1099-R) or anyone else (although PLRs have allowed a surviving spouse to roll over to their own IRA under certain circumstances). Since the distribution was to the estate of the deceased, you must request that the payer issue a corrected Form 1099-R showing taxable amount in box 2a and showing only code 4 in box 7.
You should contact the probate lawyer and inform him or her of the error in attempting to set up an inherited IRA to receive this distribution.
Once the correct taxable amount shown in box 2a of a code 4 the Form 1099-R, see the following answer by tagteam describing how to report a distribution to the estate as Other Income on Form 1041 and possibly passed through as Distributable Net Income to the estate beneficiaries on Schedules K-1:
Not sure IRS is in agreement with this statement as of 2022.
”An estate is not an individual and therefore cannot be a designated beneficiary. A 401(k) which has no designated beneficiary can only be distributed as income to the estate (code 4 on the Form 1099-R), not rolled over to an inherited IRA for the benefit of the estate”
see IRS:
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
and publication of 590-B:
https://www.irs.gov/publications/p590b
don't confuse sponsored 401k plan document rules with IRS regulations
regards
Nothing has changed in regard to this. Code 4G implies a distribution from a qualified retirement plan like a 401(k). A distribution from such a plan is not permitted to be rolled over to an IRA for the benefit of the decedent's estate.
The IRS web page that you referenced is incomplete with regard to this in that it fails to specify that only a designated beneficiary is permitted to do such a rollover and that only an individual can be a designated beneficiary. See 26 U.S. Code § 402(c)(11) which only allows such a rollover "on behalf of an individual who is a designated beneficiary (as defined by section 401(a)(9)(E))." Also see 26 CFR § 1.401(a)(9)-4 Q&A-3 which says "only individuals may be designated beneficiaries for purposes of section 401(a)(9)."
IRS Pub 590-B provides information on distributions from IRAs. A rollover from a 401(k) is not a distribution from an IRA. If the account was instead an IRA, an IRA of a decedent can only be moved to an inherited IRA for the benefit of the decedent's estate by nonreportable trustee-to-trustee transfer, so no Form 1099-R would be generated. Code G can never apply to distributions from a decedent's IRA. (Some banks mistakenly use code G for a trustee-to-trustee transfer of an IRA even though the use of code G for such a transfer has never been correct. They should have been able to figure this out at some point in the over 40 years that trustee-to-trustee transfers of IRAs have been permitted and nonreportable.)