“Transferred” vs Inherited vs Beneficiary IRA

[Wedding5500]

Hello,

My Dad passed in 2024 and was not able to take his Traditional IRA RMD.  My Mom was the sole Beneficiary.  She had his account closed and did a Trustee-to-Trustee Transfer of all funds to a credit union where she opened up a new Traditional IRA with her name on it.  From there, she took my Dad’s final RMD and she received a Form 1099-R showing only her name on it, the Gross Distribution Amount, as well as the Federal Income Tax she had withheld.  The Code in Box 7 is “7.”

I imported her 1099 into TT and the “Form 1099-R, withdrawal of money from 401(k) retirement plans, pensions, IRA’s etc.” button is clicked and it shows that the 1099 belongs to my Mom.

Should I choose “NO” for the question, “Did (Mom’s name) Inherit the IRA from (Credit Union Name)?

If “No” is the correct answer, I also need help with their IRA Basis.  Do I combine my Dad’s 2023 Basis with my Mom’s 2023 Basis and put the total dollar amount under my Mom’s “Total Basis as of December 31, 2023”?  Or do I only enter my Mom’s 2023 Basis and put my Dad’s elsewhere?

Thank you so much for any help someone can provide me.

[fanfare]

The answer is NO because your mom assumed the IRA, whose basis is added to her basis.

[dmertz]

As fanfare said, the correct answer is No.

For your mother to add your father's basis to hers, after clicking the Continue button that lists the Forms 1099-R that she received, answer Yes when asked if she mad nondeductible traditional IRA contribution, then click the EasyGuide button and TurboTax will provide the opportunity to indicate that she received basis from your father and the amount.  TurboTax will then prompt for the required explanation statement describing this adjustment to your mother's basis in nondeductible traditional IRA contributions.

[Wedding5500]

@dmertz @fanfare 

Thank you very much for your responses.  @dmertz , the info you provided on the EasyGuide button was priceless - I would not have figured that out, thank you.

The required explanation you mentioned - is that for the IRS or for TT to understand how/why my Mom rec’d the additional basis?  

Will this explanation suffice?:  “I acquired the additional basis when my spouse passed and I assumed his IRA as my own.”  In the Amount box I typed in my Dad’s basis from his 2023 F8606, Line 14.

The next screen is “Tell us the value of your traditional IRA.”  I entered in the IRA values as of 12/31/24 for my Mom’s 3 IRAs (her IRA she’s had for many years, one she inherited when her brother passed in 2011, and the one she just assumed from my Dad.

The next page asks, “Did (my Dad’s name) miss a required distribution from any retirement accounts?”  Even though he technically did miss an RMD due to passing away, I clicked the button that says, “None of these plans failed to withdraw the RMD.”  Is this the correct choice?

Lastly, when I peeked at the TT IRA Information Worksheet, it still shows my Dad’s basis on Lines 1, 3, 12, and 17.  Is this normal?  On my Mom’s side, Line 1, it shows her with the increased basis from my Dad (even though his is also showing on the left side).  It “wiped out” my Dad’s Line 2 “Year-end value on 12/31/2024” and shows my Mom with the increased value of his on the “Spouse” side (plus her two “original” IRAs).  Just want to make sure the IRA Worksheet should still show amounts on my Dad’s side.  I’m assuming next year everything for my Mom will transfer from the “Spouse” side to the “Taxpayer” side and my Dad’s will not show at all.

I would greatly appreciate your assistance in my final push to assist my Mom.

Thank you!

[dmertz]

The explanation is for the IRS and will be included with your e-filed tax return.  The IRS wants to have a record of the reason that line 2 of the Form 8606 does not match line 14 of your mother's last last previously filed Form 8606 (if any).

"In the Amount box I typed in my Dad’s basis from his 2023 F8606, Line 14."

It should actually be from line 14 of your father's 2024 Form 8606, but if he made no nondeductible traditional IRA contributions for 2024, it should be the same as line 14 of his 2023 Form 8606.

"Will this explanation suffice?:  “I acquired the additional basis when my spouse passed and I assumed his IRA as my own.”

Sounds reasonable.  I doubt that anyone will actually read it, but it's there if they do.

"I entered in the IRA values as of 12/31/24 for my Mom’s 3 IRAs (her IRA she’s had for many years, one she inherited when her brother passed in 2011, and the one she just assumed from my Dad."

The value of the IRA your mother inherited from her brother is not to be included.  Only include the values of her own IRAs.

"'None of these plans failed to withdraw the RMD.'  Is this the correct choice?"

Correct.  Upon his death, responsibility to complete the RMD moved to your mother.

It's correct that your dad's information is still present on the IRA Information Worksheet.  It would have been needed if he had taken some distribution.

I would not count on information automatically from the Spouse side to the Taxpayer side on the 2025 IRA Information Worksheet when you transfer in the 2024 tax file.  If it doesn't, TurboTax should flag an error for it still being on the Spouse side and you can then move it yourself, most easily done in forms mode of the desktop version of TurboTax.  You'll want to check your entire tax return for similar situations on any form or worksheet that has both sides.