If 1099-R shows an amount in box 2a but it is not the correct taxable distribution amount, and box 2b is checked, can I adjust Box 2a or will I be flagged by the IRS?

[karone32]

Part of what is showing in Box 2a as taxable amount was previously taxed.

[DoninGA]

If you believe the amount in box 2a of the Form 1099-R is incorrect then you will have to contact the plan administrator for a corrected 1099-R.

[dmertz]

1. What is the code in box 7 of the Form 1099-R provided by the payer?
2. Is the IRA/SEP/SIMPLE box marked?
3. Which of the two box 2b boxes is marked?

Unless this is a regular distribution from a traditional IRA, if box 2b Taxable amount not determined is marked, box 2a should be blank.

If this is a distribution from a traditional IRA reported with code 1, 2 or 7 in box 7 and with the IRA/SEP/SIMPLE box marked, the amount in box 2a is required to be the same as the amount in box 1.  Then, if you have basis in nondeductible traditional IRA contributions, the taxable amount is calculated on Form 8606.  Be sure to click the Continue button on the Your 1099-R Entries page and answer the questions that follow so that TurboTax can properly prepare Form 8606.

[h86those7taxes84ever]

Fidelity will NOT correct 1099R for inherited assets.  SO what is the mechanism by which I should correct taxable amount ( which should be the difference between columns (1) entry and the step up value on the day the assets were transferred to me).   Is there another from I need to use to do this, or do I correct the manually entered 1099R (cause Turbo tax import function sucks and doesn't work)??

I should add that the 1099R that I manually entered had Gross distribution (1) equal to (2a) Taxable
amount with (2b) Taxable amount not determined checked.

Seems to me 2a should more correctly be the difference between Gross distribution (1) entry and the step up value. But do I edit that  on the TurboTax 1099R which would then make it different that what Fidelity reports tot eh US gov?  Or is there another form in TurboTax I use to represent the correction?

[dmertz]

Retirement accounts are not eligible for a step-up in basis.  The taxable amount of retirement distributions is instead treated as Income in Respect of a Decedent (IRD) and is taxable to the beneficiary.  Enter the Form 1099-R as received.

If the decedent's estate paid estate taxes, you are generally eligible for a deduction on Schedule A line 16 of your individual tax return based on the amount of your share of the estate tax paid by the estate and the amount of IRD that you received.

[h86those7taxes84ever]

Does your answer apply when the assets are transferred out of an IRA in a living trust to a beneficiary/heir (me)? 

My mom passed away in 2020. This particular portfolio was part of her trust ( whether Traditional IRA or ROTH I am still trying to determine.) I am in this trust with 2 other brothers.  I transferred my portion of this particular portion of mutual fund shares out of the trust to my individual account in 2022, and then liquidated them in 2024.   

Were my mom still alive, I don't expect she would have to pay taxes on the full value of the asset  if she cashed out  - she would have only paid taxes on the net gain in value. 

So why should I expect to pay taxes an the whole value of liquidated shares, as if the starting basis was $0?   At a minimum, why would not at least $18K be considered a tax free gift and I only pay a tax on the difference between the sales price and $18K? Or as I said, the difference between the step up value and the sales price.

In 2024, the annual gift tax exclusion allows individuals to give up to $18,000 per recipient without incurring gift tax, while the lifetime gift and estate tax exemption is set at $12.92 million.

I think we might be talking apples and oranges here ( I could have been clearer in my problem description).  This is not a typical "distribution" from a retirement plan  in the traditional sense.  I cashed out an asset held in my deceased mothers trust.