My mom passed away in 2017 and I received a distribution from her Roth IRA. Her financial advisor stated it was not taxable. IRS now wants $3,300 please HELP.

[dmertz]

What is the code in box 7 of the 2017 Form 1099-R that you received from the payer?

What is the first year for which your mother made a Roth IRA contribution?

Did you report the distribution on your 2017 tax return, resulting in the gross distribution amount in box 1 of the Form 1099-R being included on Form 1040 line 15a (of Form 1040A line 11a)?

[gethomas66]

The code in box 7 is: 4

My mom has contributed to this Roth IRA for years (greater than 10).

There is nothing in box 15a.

What do I do now?

Do I need to fill out a form 8086?

Thank you for your help!

[dmertz]

Code 4 indicates that this was a distribution from an inherited traditional IRA, not from an inherited Roth IRA, and is therefore taxable.  Unless your mother had basis in nondeductible traditional IRA contributions, the entire amount is taxable and you likely owe the taxes and interest being assessed by the IRS.  Had you entered this into TurboTax, the taxable amount would have been included on Form 1040 line 15b.

Although unlikely, it's possible that the payer prepared the Form 1099-R incorrectly.  You would need to take that up with the payer.

[gethomas66]

My mom has two types of IRAs. One was traditional and one was a Roth. It even states on the form that it is a Roth IRA. 

I thought a 4 indicated inherited by death.

I will call her financial advisor.

[dmertz]

A distribution from an inherited Roth IRA must be reported by the payer with either code T or code Q in box 7 of the Form 1099-R.  No other codes are permitted.

[VolvoGirl]

Box 7 can even have 2 Codes in it.  Maybe one code is missing or wasn't keyed in.

[dmertz]

If the inherited account was still in existence at year-end, you should have received a Form 5498 from this account reporting to you the end-of-year Fair Market Value needed to calculate the Required Minimum Distribution for this account for the following year.  If the account was a Roth IRA, this Form 5498 would have the box 7 checkbox for Roth IRA marked.

[dmertz]

Code 4 is never to be used for a distribution from a Roth IRA either by itself or in combination with another code.

[dmertz]

One other remote possibility is that the account is a Roth account in a qualified retirement plan like a 401(k), not a Roth IRA.  In that case the distribution would have codes 4 and B together, the gross amount would be included on Form 1040 line 16a and the taxable shown in box 2a would be included on line 16b.  However, if this was indeed a code 4B Form 1099-R and the account had been in existence for 10 years, box 2a would have had a zero and it's unlikely that the IRS would have sent you anything indicating that you failed to report the income (since the form would be explicitly indicating that it is nontaxable).

[gethomas66]

 

 

 

 Who do I need to call? The financial advisor that told me this is not taxable? An accountant?

I tried to call the payer and they referred me back to the financial advisor. He told me to get an accountant. Am I just doomed?

What about a form 8606?

 

[macuser_22]

"Who do I need to call?"

The issuer of the 1099-R is who.   As pointed out already, the 1099-R says that it is NOT a Roth.  If that is wrong then the issuer that says is it not a Roth is who you call.

[dmertz]

The information on the Form 1099-R regarding the meaning of the codes does not provide the usage details for the codes.  Yes, code 4 means a distribution made to a beneficiary, but code 4 is not to be used for any distribution from a Roth IRA, it's only to be used for distributions to beneficiaries of all other types of accounts subject to reporting on Form 1099-R.

The instructions for Form 1099-R provide the code-usage requirements:

https://www.irs.gov/pub/irs-pdf/i1099r.pdf

If it's truly a Roth IRA and your mother had the account for more than 5 years, Form 8606 does not apply because the distribution is a qualified distribution.  Only nonqualified Roth IRA distributions are to be reported on Form 8606 Part III.  Also, the IRS knows that distributions reported with code 4 are not to appear on Form 8606 Part III because code 4 indicates that the distribution is not a distribution from a Roth IRA.

You need to get this sorted out with the payer and, if it's truly a Roth IRA, obtain a corrected code 4 Form 1099-R showing that $0 was distributed as a code-4 distribution and obtain a new Form 1099-R showing the distribution with code Q.  (This method provides a clearer indication to the IRS than the payer just issuing a single Form 1099-R showing correction of the code, which the IRS would have to correlate by the reported account number.)

[gethomas66]

Unfortunately, the payer would not speak with me directly so I had to contact an accountant. The accountant contacted Mom’s financial advisor and determined that the 1099-R was coded incorrectly. The financial advisor is contacting the payer to have the 1099-R corrected. The CPA is drafting a response to the IRS and I will wait on an updated 1099-R. I should not have to pay. 

Thank you all!!