My cousin's passing left me with both a traditional IRA and a ROTH. I received a $4200 gross distribution from the ROTH, taxable amount not determined is checked, distribution code is T.
TT says this is a nontaxable distribution. I'd like confirmation that this is correct, please. I know the Traditional IRA distribution IS taxable.
Thank you.
Summarizing what NCperson said, if the distribution from the inherited Roth IRA occurred more than 5 years after the beginning of the year for which the decedent first made a Roth IRA contribution, the distribution is a qualified distribution, free of tax and penalty. If the distribution occurred less than 5 years after the beginning of the year for which the decedent first made a Roth IRA contribution, the distribution is subject to the Roth IRA distribution ordering rules for determining taxability (Form 8606 separate from any Form 8606 for your own Roth IRAs) but no penalty applies because the participant died.
The ROTH distribution was coded T on the 1099-R by the issuer which means it is tax free and penalty free.
@Critter-3 - actually, Code T means
1) the issuer knows the owner is over 59.5 years old but
2) the issuer does not know that ANY Roth account was opened for 5 years.
https://www.irs.gov/pub/irs-pdf/i1099r.pdf
see page 17.
it is possible part of the distribution is taxable, which is why Code T is used).
If the issuer knew for sure it was not taxable, Code Q would be used. That would mean the issuer not only knows the owner is over 59.5 years but also knows the Roth was open for 5 calendar years. for the payment to be totally tax free, the owner of the Roth needed to be over 59.5 years old and ANY Roth account held by the owner needed to be opened for 5 calendar years.
Most likely the entire payment is NOT taxable because how the IRS establishes the order of distribution.
a) all contributions dollars are presumed to be distributed first (not taxable)
b) all conversion dollars are presumed to be distribured 2nd (not taxable)
c) all earnings are presumed to be distributed last. (only taxable if any Roth was opened for less than 5 calendar years)
there is no 10% penalty for any of this because the owner was over 59.5 years old.
So unless this is a total liquidation, it is most likely the entire distribution is not taxable, but it is worth a call to the issuer(s) to determine if any one Roth had been opened for at least 5 calendar years.
Summarizing what NCperson said, if the distribution from the inherited Roth IRA occurred more than 5 years after the beginning of the year for which the decedent first made a Roth IRA contribution, the distribution is a qualified distribution, free of tax and penalty. If the distribution occurred less than 5 years after the beginning of the year for which the decedent first made a Roth IRA contribution, the distribution is subject to the Roth IRA distribution ordering rules for determining taxability (Form 8606 separate from any Form 8606 for your own Roth IRAs) but no penalty applies because the participant died.
Thank you all. I am reasonably sure that contributions to the ROTH were made well before the 5 year mark. My cousin was in her 80s, and was spending money, not saving it. She would have mentioned recharacterizing as well, so I'm comfortable.
I'm going with Turbo Tax saying it isn't taxable.