I started an inherited IRA with the proceeds of the original IRA from my Mother.
Entering the 1099R as written will cause me to pay taxes on the total (as income) as well as when I take RMDs. This can't be correct.
SweetieJean, there are MANY inaccuracies and errors in the reference above.
you can't start an inherited IRA, only preserve it. If you cashed out your mom's IRA, it is taxable income.
Well, therein lies the problem. The bank that held the IRA was told I was transferring it to an Inherited IRA (which I now have) and sent me a check. I took the check directly to the financial adviser to start the new IRA. The IRA is now in effect entitled, IRA FBO (my name), B/O (my mother's name) Deceased.
Your IRA is titled correctly !
you will have to write an explanation letter to attach to your tax return explaining what happened. Include dates and amounts.
Form 1040 Line 15a should be amount, and Line 15b should be zero.
you could also ask the bank that held the IRA to issue a corrected 1099-R with a distribution amount of zero, but they may not be willing to do that.
in the future if you want to move an inherited IRA, use a trustee-to-trustee transfer.
Thank you for your response. Attaching a letter would require not using TurboTax for online filing. Is that your suggestion? For confirmation, Form 1040 Line 15a should be the total amount of the IRA and Line 15b would be zero? Would that be an overide of the TurboTax software?
Use Code G instead of code 4 and taxable amount zero. You will still have to mail on paper if using TurboTax online.
If you leave box 2a blank and click on the "taxable amount not determined" you will get the option to indicate it was rolled over and you will be able to efile. But keep good records so when the IRS notice comes around you will be ready for it if you can't get the trustee to correct the 1099-R.
Isn't there an interview question re: "Was any portion rolled over?", which would allow the 1099R to be entered as printed?
Your problem is Code 4 which is not a Rollover. That is why the explanation will be necessary, If you attach it up front, IRS will probably not be bothering you later.
A written explanation won't help. A distribution paid to a non-spouse beneficiary, reported with code 4, is not permitted to be rolled over. TurboTax won't ask the question under these circumstances.
Code G only applies to rollovers to or from a qualified retirement plan like a 401(k).
Was the check that you received and subsequently provided to the new inherited IRA custodian made out to you or was it made out to the receiving IRA?
Ohh ... dmertz is correct ... it had to be a trustee to trustee transfer or the check had to be in the name of the new account for the transfer to be recognized.
A trustee-to-trustee transfer is not a rollover. No rollover is permitted.
do not put any amount on Line 15. Still file with an explanation.
How an IRA gets titled depends on the purpose for which it was opened, not how it is subsequently funded. At issue is how it was funded. According to the code 4 Form 1099-R, it was funded illegally.
What needs to be determined is whether the funding was done legally and the code 4 Form 1099-R was issued erroneously, or if the code 4 Form 1099-R is correct and the new inherited IRA account was funded illegally. That depends *entirely* on the payee shown on the check.
receiving custodian should not have accepted inappropriate funds since contributions are not permitted.
Check must have been correct..
Unfortunately, it appears the receiving trustee erred in accepting the funds as a legitimate transfer. I now have to figure out how to resolve this fiasco of an illigitimate IRA.
guitarbruce, I interpret this to mean that the check was made out to you personally, negotiable by you, and the code 4 Form 1099-R is correct in implying that you received a distribution that was not eligible for rollover.
In various letter rulings involving situations where an amount not eligible to be rolled over to an IRA was deposited in an IRA, the IRS has invariably considered the amount deposited to be an excess contribution subject to penalty unless a return of the contribution is made by the due date of the tax return. Assuming that the Form 1099-R in this case is a 2016 Form 1099-R, if you filed your 2016 Form 1099-R or requested a filing extension by April 18, 2017, the deadline to make the return of contribution before the due date of your tax return is October 16, 2017.
Contact the receiving trustee about making a return of contribution. I suspect that the receiving trustee inappropriately treated this as a trustee-to-trustee transfer (which it would have been had the check been made out to your receiving IRA account). Check your Form 5498 from the receiving IRA to see if it reports any amount in box 2; if not, they indeed have treated it as a trustee-to-trustee transfer even though it was not and before they will consider making a return of contribution they will need to be convinced that an excess contribution exists.