I am the executor of an EState, the beneficiary of the IRA is the Estate. When I take a yearly distributtion what should the estate be taxed at?

[dmertz]

Paying the creditors of the estate takes precedence over making distributions to the estate beneficiaries.  Certainly any portion of the IRA inherited by you mother's estate, which is apparently the default beneficiary, that is needed to pay off creditors of the estate cannot be distributed to estate beneficiaries.  I imagine that the estate would also be responsible for paying the income taxes on any amount distributed to the estate from the IRA to pay the creditors and the income taxes, so the minimum amount needed to be distributed from the IRA to the estate is likely to be larger than just the amount needed to pay the creditors other than the tax authorities.  The amount used to pay the creditors and the income taxes would not be available to pass through to the estate beneficiaries as Distributable Net Income, so it appears that this portion would be taxed at estate income tax rates.

[Critter]

I highly recommend you seek local professional assistance with getting mom's final return and the estate return done correctly ... until both are completed you are not off the hook for any taxes either of them owe.  

[IdaBoi]

I don't think my IRA situation is as complicated as some of the other enquirers.  I am the fiduciary of the trust and the beneficiary of the IRA.  I did as you recommended: Entered the IRA distribution form 1099-R on 1041, Line 8, and Line 18.  However, TurboTax apportioned that amount on the K-1 to Lines 1, 2a, 2b, and 5, not line 5 only.  I, the beneficiary, plan to show this "Other" as IRA distribution to myself on my 1040.

[IdaBoi]

I'm reading your advice NOT to have tax withheld from an estate's IRA distribution too late.  It's already been done.

IRS Instructions for Form 1041 (2019), p. 34, say re: 1041, Line 14, that backup withholding can be credited to beneficiary and reported on K-1, Box 13, Code B.  Will TurboTax let me do that?

[dmertz]

IdaBoi, if you are the beneficiary of the IRA, why was a distribution paid to the trust?  Or did you mean to say that the trust is the beneficiary of the IRA.  Or if the distribution was paid to you, why is it on the trust tax return at all?

I don't understand your description of the boxes and lines of which forms.  Please be more specific, since there is no way to interpret your details that makes any sense.

"Backup withholding" is withholding is required because either you refused to provide a correct TIN to the payer of the IRA distribution or the IRS has mandated that the entity receiving the distribution subject to such withholding, and backup withholding is required to be 24%.  What was withheld from this distribution is not backup withholding.

https://www.irs.gov/newsroom/reduced-24-percent-withholding-rate-applies-to-small-businesses-and-oth...

[IdaBoi]

Maybe the bank which was the custodian of the IRA prepared its 1099-R incorrectly for 2019.  It issued an 1099-R to the deceased showing that the entire amount was distributed.  However, it was distributed directly to the beneficiary of the IRA, me, who then rolled it over into my own IRA.

As I said I entered the amount where you recommended on Form 1041, Line 8, Other Income, and Line 18, Income distribution deduction.  However, TurboTax Business on Schedule K-1 did not enter that amount on Line 5, Other.  TurboTax software proportioned that amount between Line 1, Interest; Line 2, Dividends, and Line 5, Other.

Sorry that I misunderstood "Back-up Withholding".  The bank withheld 10% for Federal income tax, which I guess is the default when there are no specific instructions.  I'll enter the amount withheld on Form 1041, Line 26, Total payments.  I'm not worried about having to wait for a refund from IRS, as the lawyer just informed me today that the court date as been postponed again for closing the estate.

Thx for your help so far.

[dmertz]

If you were the beneficiary designated on the IRA, neither the estate of the decedent nor any trust has anything to do with this.  It sounds like the Form 1099-R should have been issued to you, not to the decedent, not to the estate and not to any trust.  Any tax withholding on f Form 1099-R issued to you would be credited on your individual tax return.

Presumably this distribution was made after the death of the decedent.  Did the bank know that the decedent had died?  Who requested that the distribution be made?

Are you the surviving spouse of the decedent?  If not, this money was not eligible to be rolled over.

[Critter]

The IRA could have been re titled to the decedent' name FBO your name ... an inherited IRA could not be rolled into an IRA in your name only.   I think you have a mess on your hands and really need to seek local professional assistance to get this cleared up.  This forum may not be the best medium since it seems the entire picture is not being seen by those trying to give advice... hard to see in the dark.

[IdaBoi]

Thx for your interest in my situation and sharing your opinions.  I'm ready to move on.

[Taxesjmmr]

I have a similar situation.  Have you found any information on putting the Estate inherited IRA into another inherited IRA in the the name of the beneficiary (wife).  The custodian I am dealing with says I cannot.

[macuser_22]

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@Taxesjmmr wrote:

I have a similar situation.  Have you found any information on putting the Estate inherited IRA into another inherited IRA in the the name of the beneficiary (wife).  The custodian I am dealing with says I cannot.

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You are tagging onto an old post, but if the estate was the benificuary of the IRA then the estate must distribute the proceeds of the IRA to the beneficiaries of the estate on a K-1 form.  the IRA itself  cannot be transferred to the benificuary (even if you were the only benificuary of the estate) - that is why IRA's allow the IRA owner to name direct beneficiaries of the IRA so that it does not go to the estate.

[dmertz]

As I explained above, the IRS has issued many Private Letter Rulings indicating that transferring the inherited IRA out of the estate to inherited IRAs is permissible.  I've know of no contrary ruling by the IRS denying this.  The only reason that the IRA would be required to be distributed to the estate is if the IRA agreement prohibited transfer of an IRA inherited by the estate.

Investigate transferring the inherited IRA to an inherited IRA for the benefit of the estate at another custodian who will be accommodating of a request to transfer the IRA intact to inherited IRAs for the benefit of estate beneficiaries.

What is not permitted is rolling over an inherited qualified retirement plan (not an IRA) to an inherited IRA for the benefit of the estate; such a rollover is only permitted if the beneficiary of the plan is an individual.  If the account is in a qualified retirement plan, not in an IRA, the account can only be distributed to the estate and this income to the estate distributed to beneficiaries of the estate.  Unless the qualified retirement plan requires a total distribution under the circumstances, the estate would need to be kept open to receive distributions from the inherited qualified retirement plan and pass the income to the estate beneficiaries if distributions are to be received over the number of years .

[lilah_]

Hi, @dmertz 

I read your response to the original post. I believe this is what I ended up doing with most of the accounts from my father when he passed. However, there is one beneficiary IRA left that we were not able to transfer due to the way it was titled. Currently, I'm told there is no beneficiary to this IRA. Both distributions we have made from it have gone to the estate and then been distributed to the beneficiaries of the estate. I am the executor and one of the beneficiaries of the estate. This year though, the estate checking account was closed out and there isn't another one. I've been trying to find out if its okay to make the distribution directly from the IRA to the beneficiaries, without going through an estate account. No one can give me a direct answer to this, so I've been trying to find the information myself. Have you found any information regarding this that you might be able to direct me to? Thanks!

[dmertz]

I assume that you meant to say that your father did not explicitly designate a beneficiary and that the estate was the beneficiary by default, not that the IRA had no beneficiary.

The estate cannot yet be closed since the estate still holds the inherited IRA for the benefit of the estate.  As I said above, the IRS has permitted such an IRA to be transferred to separate inherited IRAs for the benefit of the respective estate beneficiaries.  If the IRA is not transferred out of the estate, an estate banking account will have to be established to receive distributions from the IRA and the income from the IRA passed through to estate beneficiaries.  As it the IRA is presently titled with the estate as beneficiary, distributions must be paid to the estate.  They cannot be paid directly to estate beneficiaries unless the inherited IRA is transferred out of the estate to separate inherited IRAs for the benefit of the estate beneficiaries.

Unfortunately, the previous reference I provided that was authored by Natalie Choate no longer exists at the link that I provided above several years ago.  See another reference that she has provided where she discusses on page 12 rulings where the IRS has permitted an IRA inherited by an estate or trust to be transferred to separate inherited IRAs for beneficiaries of the estate or trust:  https://www.ataxplan.com/wp-content/uploads/2020/11/TrustAsBene-2020.pdf

[macuser_22]

I do not think PLR's can be used as a precedent and she also says (page 13): "Unfortunately, a PLR
cannot be relied on or cited (by someone other than the person who obtained it) as a binding
legal precedent. § 6110(k)(3)."

Even if the IRS would allow it, the IRA trustee might not be willing to do so and getting your own PLR is very expensive.