Do I have to claim inheritance? I received two 1099-R's

[MargaretL · Accepted solution]

Yes, you do need to claim inherited retirement plans (forms 1099-R).

Please be sure to enter each 1099-R individually into TurboTax- exactly as they are printed- and answer follow up questions.  You will be asked if the inheritance was from your spouse or someone else.  The program will ask you some more questions about the decedent and, based on your answers, will determine the correct tax treatment for each form.

1. Federal Taxes
2. Wages and Income
3. Select Jump to Full list
4. Scroll down to Retirement Plans and Social Security
5.  Select IRA, 401(k), Pension Plans (1099-R)

NOTE:   The tax treatment of an inherited IRA depends on whether it was inherited from a spouse or a non-spouse.

1.  Inherited from a spouse.

If you inherited a traditional IRA from your spouse, there are three choices:

1. You can treat it as your Own IRA by designating yourself as the account owner.
2. Treat is as your own by rolling it over into your IRA, or to the extent it is taxable to a qualified employer plan.
3. Treat yourself as a beneficiary rather than treating the IRA as your own. 

You will be considered to have chosen to treat the IRA as your own if you made contributions to the inherited IRA (your above the line deduction) or you do not take the RMD -required minimum distribution for a year as a beneficiary of the IRA.

2.  Inherited from a non-spouse.

If you inherited the IRA form a non-spouse, you cannot treat it as your own.  It means you cannot make any contribution, you cannot rollover any amounts into or out of the IRA, other than trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary.  You also must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries.

If you received a distribution from an inherited IRA, it is added to your income and taxed accordingly. You will be receiving a Form 1099-R indicating your distribution as a “death distribution” – code 4 in box 7 will be applied.

Be sure to answer follow up questions about inheritance. For example, if the decedent made any nondeductible contributions. Why is this important? Well, nondeductible contributions are treated as return of investment and are not taxable; it may be beneficial for you to find out (often your plan administrator, broker or banker has this information or form 8606 from prior years' tax return should indicate that information ).  You will also be asked if the original owner of the IRA passed away after he/she was 70 ½, did he/she take required Minimum Distribution (RMD) in the year of death. Again, your plan administrator should know and you should as well…if the RMD was not taken, a 50% penalty on not distributed amount may be applied.

[lamurphy1946]

what if you just rolled-over the inherited IRA

[DaveF1006]

Then you will not be taxed for the inherited IRA.

[lamurphy1946]

 I entered the 1099-R but how do I show that it was rolled-over?

[DaveF1006]

After you enter the 1099R, there will be a series of followup questions. There should be a question appearing asking you what you did with the money.  Here you can say you returned it or rolled it over to another retirement account. 

[dmertz]

lamurphy1946, are you the surviving spouse of the decedent?  If not, the Form 1099-R indicates that a distribution was paid to your that was not eligible for rollover and TurboTax will not allow you to report the distribution as having been rolled over.

[loveremy]

You are a tax expert ??? Where is our stimulus ??? Turbo tax is going to have a civil suit filed on them by a lot of ppl !! Turbo tax scammed millions 

[Kate12NJ]

For RMD from inherited IRA (from grandparent) - Is there a basis for this? I’m looking more for NJ purposes, I’m assuming the contributions were deducted for federal purposes, but is there a ratio of distribution to gain in the account? Or is the whole RMD that is fully taxable??

[hcata10701]

I closed out my mother's IRA during the same year as her death Mar 2021. Partial taxes were paid and a 1099-R was was issued from the bank in my name. do I just check the box that all distribution was RMD seeing that the account is closed?

[JillS56]

If your mother had not yet taken her RMD for 2021 before her death, then check the box that all distribution was RMD.   Since you inherited the IRA you must make sure the RMD for 2021 is taken and in the amount the deceased would've withdrawn.   If you pulled the entire amount out of the IRA, then you do not need to worry about the second half of the requirement.  

[hcata10701]

I closed out the account $5,000. and she had not taken her RMD. Her RMD in the past was around $800 yearly.  So my confusion is the box to check and depending on that the required entries

[JillS56]

 If only part of the distribution covered the RMD, then you should check the box for "Only part of this distribution was a RMD".   

Since she had not taken the RMD for 2021 before her death, then  you need to report that the RMD was taken.   

[dmertz]

TurboTax only asks the question to determine how much of the distribution is ineligible for rollover, but because you are a non-spouse beneficiary, the distribution was not eligible to be rolled over anyway.  It doesn't matter what your answer is to this question being posed by TurboTax because there was no rollover.

[hcata10701]

If I withdrew (2021) the entire IRA amount, that was inherited, in the year of death and closed out the IRA which box needs to be checked? She passed in March 2021 and had still not taken the required RMD, that usually automatically came in Dec each year.