I inherited a IRA

[harrycarver-mobi]

Nowhere in Turbotax to show it was transferred, so it shows up as if i received the whole amount.  The receiving company issued 1099s for distributions, as required.

[dmertz]

Why would the receiving company have issued any Forms 1099-R?  Forms 1099-R report distributions, not receipt of transfers.  A trustee-to-trustee transfer of an inherited IRA is not reportable by either the originating or receiving IRA custodian, so receipt of a Form 1099-R is not consistent with such a transfer.  Something is amiss with the information that you've provided here.

[harrycarver-mobi]

I agree with you.  I do not think they should have sent me a 1099-R.  I called them today and they said they are required to issue the 1099-R as they close out the account, even though they sent it to Vanguard in a peer-to-peer transfer.

[dmertz]

OK, so it was the old custodian that sent the Form 1099-R, not the receiving IRA custodian as you originally stated.  That's a little more understandable.

What is the code in box 7 of the Form 1099-R from the old custodian?

Is the IRA/SEP/SIMPLE box marked?

[harrycarver-mobi]

Code 4;  IRA/Simple/SEP is checked

[harrycarver-mobi]

To further clarify:

1.  The original financial institution issued a 1099R for the entire amount in the IRA when it was transferred (peer to peer) to Vanguard.

2.  Vanguard issued 1099R for the subsequent distributions taken later in the year, after they had received the inherited IRA.

I was expecting the 1099R from Vanguard for the distributions.  I did not expect the 1099R from the original institution for the full amount that they transferred to Vanguard.

[dmertz]

Thanks for the additional details.  They tie all of the previous information together.

If this inherited IRA was truly moved by trustee-to-trustee transfer, the old custodian should not have issued a Form 1099-R.  You need to fight this with the old custodian because the Form 1099-R the old cusotdian issued implies that that the money was paid to you, not paid directly to the inherited IRA at Vanguard and a distribution paid to you is not eligible for rollover to a different inherited IRA.  You'll also want to verify that Vanguard has treated this as a nonreportable transfer and will not appear as a rollover on Form 5498 for the new account.

Note that some versions of 2020 TurboTax will allow you to report this as a rollover even though in this case a rollover is not permitted.  This has to do with the IRS permitting repayment back to the original IRA of amounts that would have been an RMD were it not for the CARES Act, but that doesn't apply to your situation.

If the old custodian happens to be a bank rather than a larger financial institution like Vanguard, my experience is that front-line reps at banks are notoriously bad at understanding these nuances.  Regardless, make sure that you escalate the issue to the back office personnel responsible for IRAs who might know a bit more about this.  If Vanguard has understood this to be a nonreportable trustee-to-trustee transfer, it seems that they would not have accepted the transfer without believing that the old custodian was also treating it as a trustee-to-trustee transfer.  Trustee-to-trustee transfers generally require coordination directly between the custodians to ensure that mistakes do not happen on either end.

[harrycarver-mobi]

Vanguard has the account set up correctly as an Inherited IRA as custodian for the deceased.  

The original institution is Navy Federal Credit Union.  I called today and I believe they are treating it as a rollover.  I'll call again tomorrow and dive deeper into this.  I read every piece of IRS literature i could on the subject and came to the same conclusion you did.  I believe it was issued in error.

[dmertz · Accepted solution]

Regarding Vanguard, the question was not how the account was titled, which seems correct, but was whether Vanguard would be reporting on Form 5498 receipt of any kind of contribution.  If Vanguard reports any kind of contribution on Form 5498, that would be an additional problem, but is probably unlikely since Vanguard would likely have known that they could not accept an actual rollover into this newly established inherited IRA.

I have a family member who had a similar experience due to the bank local-office rep simply marking the wrong box on their form for moving funds out of one IRA into another, despite repeated insistence that this was to be a transfer, not a distribution.  In that case this bank was even the custodian of both accounts, not involving any outside coordination!  It took months to get a correction, with the bank finally properly issuing a corrected Form 1099-R identical to the original except with all dollar amounts replaced with zeros.  This is the same correction that you need to obtain.

[harrycarver-mobi]

Thanks for the help.  This ought to be a fun process!