Spousal Inherited IRA to take RMD and Then Assume

[tax filing]

My husband died in 2022 and still had some RMD to take.  As the spouse, I  established an Inherited IRA with my husband as the benefactor.  I took the RMD and then Assumed the residual of the Inherited IRA into my own account. 

My broker sent a 1099-R (husband as Benefactor, but with my SS #) indicating a Gross Distribution of my husband's ENTIRE IRA with the tax undetermined and Code 4 - Death.  How can I use TT to report that I took just the RMD (taxable) and Assumed the rest (not taxable) without showing the ENTIRE amount as Taxable.

Also, since my husband had non-deductible (prior year) contributions and completed 8606 Forms - how do I calculate how much of my husband's 2022 RMD is not taxable? We have Forms 8606 but

1.       What year 8606 Form do I use ( 20021 or a new 2022 that show the impact of the recent RMD)? 
   
2.       What line on that 8606 Form do I reference that shows the non tax portion of the RMD that I should input to TT
   
3.       What line on that 8606 Form has the New Tax Basis- and do I just add that figure to my own new 8606 Tax  
   

       Thank you very much. I am thoroughly confused!!

[dmertz]

Assumption of ownership of the remainder of the inherited IRA should have been accomplished by a nonreportable trustee-to-trustee transfer and the gross amount on the Form 1099-R should have been only for the RMD.  However, it seems that the broker instead moved the funds into your name by making a distribution of the entire inherited IRA and rolling over to your own IRA the amount in excess of the RMD (not by assumption of ownership).  This subjects the distribution to the one-rollover-per-12-months limitation whereas a trustee-to-trustee transfer would not.

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, that you did a combination of rolling over, converting and cashing out, then enter the amount rolled over to your own IRA.  TurboTax will include the entire amount on Form 1040 line 4a but will include only the RMD amount on line 4b and will include the word ROLLOVER next to the line.

[dmertz]

Regarding Form 8606, you'll need to prepare 2022 Form 8606 outside of TurboTax to calculate the taxable amount if the RMD distributed from the inherited IRA in 2022, then mail it with your tax return.  TurboTax does not support preparing Forms 8606 for inherited IRAs but instead asks you to just enter the taxable amount (which it stuffs into box 2a of TurboTax's 1099-R form).  For the amount to include on line 6 of this Form 8606 you'll use the balance that was rolled over to your own IRA, the last balance it had before the inherited account ceased to exist.

The remaining basis shown on line 14 of this Form 8606 becomes an adjustment to your own basis on your own Form 8606 which you'll need to file when you take a distribution from what is now your traditional IRA (which would be a 2022 Form 8606 separate from the one for the distribution from the inherited IRA if you took a distribution from your own traditional IRA in 2022).

[tax filing]

Thank you so much.  This is really helpful and I certainly appreciate your thorough and quick response!!

I've input info as you suggested and now hae a designation STMT  appearing alongside line 4a and not the Rollover Designation you mentioned.  Is that okay?  

Also, 1040 line 4b doesn't reflect ALL my 1099-R Div as input on the 1099-R individual entries.  I'm unable to change to insure I'm reporting gross distributions.  Would appreciate your guidance,

[dmertz]

The STMT notation implies that there are multiple notations (perhaps ROLLOVER and QCD) and because they will not all fit in the available space they are included on a separate statement that TurboTax will include with your filing.

The gross amounts from Forms 1099-R reporting distributions from IRAs are summed on line 4a, not line 4b.  Only the taxable amounts of the IRA distributions are summed on line 4b.   Forms 1099-R reporting distributions from other types of retirement accounts are reported on lines 5a and 5b.

[tax filing]

The f/u to our ongoing conversation was terrific.  Your information was concise, direct, and easy to understand.  Always great to have your support and insight. It's so helpful to know what is generating reportable data!!

[tax filing]

Hello dmertz or others!!

I'm still a little confused.  As you suggested I created an 8606 outside of TT for my deceased husband and for line 6 used the value of the inherited IRA immediately prior to my assuming.

Now I am creating my own 8606 form.  For line 6 (Total Value of all IRAs) do I take the combined year end total of my IRAs AND the one I inherited?   (in a sense double counting the inherited value since I used that for my husbands)???

Relative to Basis do I add my husbands new basis to my current new basis for 2022 filing, or do I add my husbands basis to mine next yea???

Many thanks.

[fanfare]

[ removed ]

@tax filing 

[dmertz]

Your year-end value in traditional IRAs includes any IRA inherited from your spouse that you have chosen to treat as your own.  Value of your traditional IRAs is not really "counted" in the sense that it would be double counted, it's used to determine the proportion of basis.  Before you assumed ownership, the value just prior to assuming ownership is used to determine the proportion of your spouse's basis to value for determining the nontaxable amount of your spouse's distributions.  Assuming ownership of the IRA makes that part of your own year-end value and, to answer your second question, you also acquire the remaining basis from line 14 of your spouse's Form 8606 prepared using the date-of death value, which must be entered into TurboTax as an adjustment to your own basis (which requires an explanation statement).  Click the EasyGuide button after telling TurboTax that you have basis in your own IRAs.

To support the date-of-death value of the traditional IRA, the IRA custodian is supposed to issue a Form 5498 to the decedent showing the date-of-death value in the box intended for year-end value, but they almost never do.

[YikesTaxes]

@dmertz I found your comments on how to enter a spousal inherited IRA rollover that includes an RMD to confirm I was entering the 1099-R correctly into TT.   I am unable to get the RMD to show on the 1040 line 4b.  I am using TT Premium Online.  What am I missing?

I selected myself as the 1099-R belonging to me.

I entered (example):

Box 1 Gross Distribution $10,000 

Box 2 Taxable $10,000 

Box 2b Both check boxes checked

Box 4 - Federal Tax Withheld $1,000

IRA/Simple/SEP Box Checked

Box 14 - State Tax Withheld $1,000

Box 15 - State Abbreviation & Number

Continue

I Inherited This IRA - Check Box Selected

Continue

Entered my husband's name and year he passed

Continue

Selected Yes to Did you transfer the inherited funds into your own IRA account

Continue

Selected that my husband was born before January 1, 1950

Contiue

How much of the $10,000 was an RMD? 

   Selected Only part of this distribution was an RMD and entered $4,000.

Did you transfer the Gross Amount of $10,000 to your own IRA?

   Selected No, I transfered less than $10,000 and entered $6,000.

[MarilynG1]

Indicate that all of the 10K distribution was RMD, and that you transferred 6K to your own IRA.  You get taxed on the 4K income you didn't roll over. 

The IRS is only concerned that you took the RMD; they have no idea what the amount of your RMD should be, and it is not indicated on the Form 1099-R.

The only time you need to indicate that only part of a distribution is RMD is if you rolled over the RMD to QCD (qualifying charitable distribution).

Here's more info on IRS Requirements for RMD's.

@YikesTaxes 

[YikesTaxes]

@MarilynG1 Thank you for your assistance.  I change the Check box to The entire distribution was an RMD and continued through the remainder of the screens.  The $4,000 is not being added to the 1040 Line 4b.  

[MarilynG1]

On your Form 1099-R, Box 2a should not be 10K if part of the distribution was rolled over.  Try removing that amount from Box 2a.

What is the Code in Box 7 on your form?

If I'm understanding correctly, you received a 10K distribution, and rolled over 6K of it, so should be taxed on 4K.  If that applies, there should be 10K on Line 4a of Form 1040, and 4K on Line 4b.

If this is not the case, please clarify. 

@YikesTaxes 

[YikesTaxes]

When my husband passed in 2023, his IRA was $10k and a RMD happened for $4k.  Then my IRA was established and his $6k account balance was rolled into my new account.  I received a 1099-R in my name and SS# for $10k in both Box 1 and Box 2.  Box 7 is marked with a 4.

Currently on the Form 1040, there is $10k in 4a and $0 in 4b.  I will try changing TT 1099-R Box 2 to $4k. 

@MarilynG1  

[YikesTaxes]

Changing the 1099-R Box 2 to $4k did not change anything on Form 1040 Line 4b.

@MarilynG1