Inherited ira
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Inherited ira

Received inherited ira from mother in form of check. Took check and put in my inherited ira account in full. Received 1099-r from mother’s bank indicating that full amount is taxable (2a). Where on 1040 do I show that it was transferred to a new inherited account so I don’t get taxed for it. 

3 Replies
Level 15

Inherited ira

IRS website - https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary

 

Inherited from someone other than spouse. If the inherited traditional IRA is from anyone other than a deceased spouse, the beneficiary cannot treat it as his or her own. This means that the beneficiary cannot make any contributions to the IRA or roll over any amounts into or out of the inherited IRA. However, the beneficiary can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of the beneficiary.

Like the original owner, the beneficiary generally will not owe tax on the assets in the IRA until he or she receives distributions from it.

 

Since there was not a trustee-to-trustee transfer you report the taxable amount received on your tax return.

However, an expert may have a better view on this situation - @dmertz 

Level 15

Inherited ira

Explain more.

 

For a IRA benificuary other than a spouse, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary.

[IRS Pub 590B https://www.irs.gov/publications/p590b#en_US_2018_publink1000230538]

 

A trustee-to-trustee transfer does not generate a 1099-R.  If there is a code 4 in box 7 than that indicates that you took a taxable distribution.    That distribution is not eligible for a rollover - in other words, you cannot put the money (check)  into another IRA - that can only be done by a trustee-to-trustee transfer.

 

Any money put into a IRA that exceeds your yearly allowed new contribution would be an excess contribution subject to a 6% penalty that repeated every year until removed.  If done in 2019 then you have until Apr 15, 2020 to remove it as a "return of excess contribution" without penalty.

 

I

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
Level 15

Inherited ira

Although Congress has considered changing this aspect of the tax code, it's true that, under present law, if you received a check from your mother's IRA payable to you as a non-spouse beneficiary, indicated by the fact that you received a Form 1099-R, the money was not permitted to be deposited as a rollover to an IRA, inherited or otherwise; the custodian holding the IRA titled as an inherited IRA should not have permitted you to deposit the check into any IRA as a rollover.  Funds are only permitted to be moved from the IRA of the deceased to an inherited IRA for the benefit of a non-spouse beneficiary by nonreportable trustee-to-trustee transfer.  Funds impermissibly deposited into the IRA constitute an excess contribution that is subject to a 10% an excess contribution penalty each year that it remains in the account.

 

TurboTax is programmed to know that a rollover of an IRA by a non-spouse beneficiary is not permitted, so it will not permit you to report it as having been rolled over.  The distribution is taxable on your tax return.  Unless you obtain an explicit return of excess contribution of these funds from the inherited IRA, you must report the contribution as a regular personal IRA contribution that will be subject to penalty to the extent that the amount exceeds the amount that you are eligible to contribute to an IRA of your own for the tax year (and somehow you'll need to convince the custodian of the inherited IRA that the permissible amount needs to be moved nonreportably to an IRA of which you are the participant, not as beneficiary, and to issue a corrected Form 5498).

 

If the check was actually made payable to the inherited IRA for your benefit and not made payable to you, the original IRA custodian issued the Form 1099-R in error.  In this case you must contact the original IRA custodian to obtain a corrected Form 1099-R showing $0 distributed.

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