Spousal Inherited IRA to take RMD and Then Assume

[dmertz]

@YikesTaxes , my initial testing suggests that this is a TurboTax bug, but I'll have to do further testing to confirm that.  It seems that indicating that you transferred any to your own IRA causes TurboTax to treat the entire amount as having been rolled over despite your subsequent answers indicating that only part of the distribution was rolled over.  If you instead indicate that none of this was transferred to your own IRA, TurboTax (at least the online version, I have yet to test the CD/download version) will not allow you to indicate the amount rolled over)  For now, the only way that I have been able to get the correct taxable result (I currently only have access to the online version of TurboTax) is to split the Form 1099-R into two:

Form 1099-R #1, indicate that it was transferred to your own IRA  and none of it was RMD

Box 1:  $6,000

Box 2a:  $6,000

Box 2b Taxable amount not determined:  Marked

Box 4:  $0

Box 7:  4

IRA/SEP/SIMPLE box:  Marked

Box 14:  $0

Form 1099-R #2, indicate that it was not transferred to your own and it was all RMD

Box 1:  $4,000

Box 2a:  $4,000

Box 2b Taxable amount not determined:  Marked

Box 4:  $1,000

Box 7:  4

IRA/SEP/SIMPLE box:  Marked

Box 14:  $1,000

[YikesTaxes]

@dmertz , Thank you for troubleshooting my issue and confirming the software is not treating the RMD portion of the rollover properly.  I used your workaround and now have the funds accurately reporting on Form 1040 Lines 4a and 4b.  

How does this probable bug get reported to Turbo Tax? 

Again, thank you @dmertz!

@MarilynG1 

[dmertz]

I've confirmed that the CD/download version of TurboTax has the same bug, but with the CD/download version it's possible to get the correct taxable result with the single Form 1099-R by making entries in forms mode.  To do so, it's necessary to mark the second box in the Inherited IRA section, "Recipient, but was originally inherited from a spouse (treated as recipient's IRA),"  entering $4,000 as RMD, then entering $6,000 on line B2 in the Rollovers section.  This combination of entries is not possible using step-by-step mode and if you edit the form in step-by-step mode after making the forms-mode entries, step-by-step mode will corrupt your forms-mode entries.

[ctx192021]

In a similar situation to the OP.

@dmertz  wrote: 

"As a distribution and rollover, enter the Form 1099-R as received.  Indicate that it's an inherited IRA that you inherited as spouse of the decedent.  Indicate that part of the distribution was RMD and enter the amount that was RMD.  Finally, indicate that you moved the money to another retirement account....etc"

Where does one indicate these things in the TT program, especially there you "Indicate that part of the distribution was RMD"?

This is not asked in the TT program if you took RMD out of the amount on Box 1 of the 1099-R.

Do you have more detailed instruction that is in the program?
Using TT Deluxe.

Thank you very much. 

[dmertz]

To accommodate TurboTax's limitations, you can split the Form 1099-R into two, one for the portion that was RMD and the other for the portion that was rolled over.

[ctx192021]

Thank you for your response, but I don't see how TT allows you to split it into 2. 
It asks you to put in the info that is on the 1099-R that you received.

Are you saying to:

•Make 2 1099-R entries, splitting the distribution. 

•Change the distribution code on one from 4 to 7? 

That seems like the IRS would see that you didn't match the 1099-R info on your return. 

Please explain.

Thank you very much!

[ctx192021]

I should clarify:

The IRS has received the 1099-R with the #4 (death) in box 7 and the total amount of the rollover. 

By splitting it, it seems the only way to do it is to input another 1099-R (that does not exist) into the TT program with a #7 in box 7. 

Since the IRS will not receive a 1099-R that shows  a #7 in box 7, splitting the 1099-R in TT will not match the 1099-R form that they have received. 

TT will actually show a 1099-R that does not exist, which was not submitted to them. 

This seems like it will create a problem. 

OR 

Perhaps you mean to take the one 1099-R and put different codes into box 7 than are on the 1099-R that they got?

BUT, TT although TT allows you to put 2 different cods in for box 7 (#4 & #7), but it leads to nothing. It does not give you a path to detail how a  "split" will work in the  program.

Plus it will not match the 1099-R that they received as mentioned above. 

Please give the details of how you mean to do this, because I don't see how it is possible. 
Thank you very much! 

[dmertz · Accepted solution]

Do not change the code in box 7.  Both should have code 4.  (TurboTax treats code 4 the same as code 7 when the beneficiary is the spouse of the decedent.)  Simply split the amounts in boxes 1 and 2a between two 1099-R forms in TurboTax, indicating one is RMD and the other reports a distribution that was rolled over.  (If any amount was withheld for taxes, you can allocate that to the 1099s, reporting on the 1099-R for the RMD no more withholding than the gross amount reported on that form and any withholding beyond that on the 1099-R for the rollover.

[ctx192021]

So to be clear, the amount that I put into TT for each 1099-R will NOT match the amount on the 1099-R from the broker. But the total of both inputs will be equal to the amount on the 1099-R received from broker? 

(By "splitting" it they will both add up to that amount, correct? )

Example: 

If the total was $20,000 and the RMD was $3500, then each of the 1099-Rs have these numbers: 

First 1099-R input into TT: $16,500 

Second 1099-R input into TT: $3500.

Seems like an odd way of reporting this, and it would have been better if the broker gave 2 1099-Rs for each event so that everything matches. 

But what I described above is what you are advising, correct? 

(And again, thank you very much.)

[ctx192021]

@MarilynG1  do you have any advice as well for the questions above?

Thank you.

[dmertz]

You example is correct.

It's proper for the IRA custodian to report on a single Form 1099-R.  The custodian is not responsible for knowing the amount that is RMD or what you did with the distributions.