Form 4972 Tax on Lump-Sum Distributions

[ghauswirth1122]

My brother died in 2019. He had a pension plan. I was the beneficiary of the pension plan.  I received a 1099-R. 1099-R line 1 is $6769. 

Using Turbotax I had a choice -

Yes, let's see if Gary qualifies for the special averaging method or

No, let's finish up this 1099-R for now. I can come back later if I change my mind. 

I am assuming the special averaging method is Form 4972 and "No" is ordinary income. 

I tried both.

Form 4972. I answered the questions for lines 1 through 5B. 1-Y, 2-N, 3-Y, 4-N, 5a-N and 5b-N. This lets me use Form 4972. 

The Federal Tax difference between ordinary income and Form 4972 is $1130.

Which method should I use? Can I use Form 4972? I afraid if I use Form 4972 and found later I should have reported as ordinary income, I will need to pay the $1130 difference. 

[MarilynG1]

I am sorry for your loss.

Click this link for detailed info on Form 4972. 

This link has some discussion on Income from Inherited IRA. 

[Edited 2/14/2020 | 5:03 pm]

[dmertz]

Whoa, it's the date of birth of the decedent that matters with respect to a Lump-Sum Distribution in this case, not the date of birth of the beneficiary.

[MarilynG1]

Yes, thank you @dmertz

[dmertz · Accepted solution]

The answers you provided for Form 4972 indicate that you qualify for special 10-year averaging.  If your answers are accurate, there should be no concern about using the special 10-year averaging if it produces a lower tax liability.  Does the Form 1099-R include code A in box 7?  If so, there should really be no concern as long as you did not do a direct rollover to an inherited IRA any of this distribution, which is what you indicated in your answer to question 2.

[dmeik21]

I cannot get turbo tax to allow me to file the 4972. I meet the criteria but the only questions it asks are about hurricane/disaster.  how do you get to the 4972 form questions?

[dmertz]

A lump-sum distribution must be a total distribution, so the Form 1099-R provided by the payer needs to have box 2b Total distribution marked.  Ideally the Form 1099-R would also have code A in box 7, but TurboTax does not require that.

[rkolittle]

Hi.

Did you get an answer on how to incorporate Form 4972 into your Turbo Tax return? I have the same issue and I don't know how to resolve.

Thank you.

[rkolittle]

Same issue for me?  Were you able to find out how to get the 4972 incorporated into your Turbo Tax return?

[gloriah5200]

Here are the requirements to be qualified to use the Form 4972 Lump Sum Averaging and the questions are asking for the decedent's date of birth, not that of the beneficiary.

As provided above by MarilynJoy, here is information regarding the qualifications to use the Form 4972 for 10 year averaging of a lump sum distribution:

Click this link for detailed info on Form 4972. 

This link has some discussion on Income from Inherited IRA. 

The total distribution box must be checked on the 4972 input and generally there should be a code A in box 7 distribution codes box, but not required by TurboTax

[dustyb]

I was thrown off on the IRS Form 4972 instructions when it says a qualified lump sum distribution can't be an IRA Distribution? Isn't that the whole point? I'm looking into whether the 1099-R on a lump sum distribution from a deceased parent's traditional IRA (parent born before 1936 - total distribution box checked - distribution code 4) can be taxed on 4972. I thought it could.

https://www.irs.gov/pub/irs-pdf/f4972.pdf

[Critter-3]

@dustyb 

Distributions from an IRA do NOT qualify for the 4972 ... just look at the form ... good news is that you now have 10 years to dissolve the IRA that is  inherited from a non spouse so you get relatively the same thing by not taking the entire sum at once. 

 

[dustyb]

Thank you. Yes, I see that now. I figured it was too good to be true. Unfortunately, it was already distributed lump sum cash. No inherited IRA established. So I guess it's straight income. There were withholdings which makes it a little less painful.

[webbobbie]

I am filing my father's final tax return.  He received an 1099-R for his 401K with "Total distribution" box checked.  However, I know that the amount represented are only the RMDs that were withdrawn from the account and the remainder of his 401K was put into a different 401K account for his trust (which was the beneficiary).   

So if I answer all the questions accurately, TurboTax allows me to take the special averaging method, but it seems this might not be quite accurate.  Looking for confirmation that, upon death, the averaging method can still be applied if the remainder of the 401K was actually moved to a different account.

Thanks

[webbobbie]

I think I answered my own questions.  When TurboTax asks if this represents the entire balance ... I should click "no" despite what the form says, because the entire balance was transferred to an account whose distributions go to  the trust. Furthermore, I will likely want to use the 10 year method in the future to withdraw the entire amount from the new account.