Wife's Beneficiary IRA had to be liquidated, we did it through ETRADE, but no forms. What to do in TurboTax?

[rkd80]

Hi everyone,

We got a strange situation where we realized that my wife's Beneficiary IRA had to be completely withdrawn.  She was taking RMDs for a while, then paused during COVID and we realized this year that it all had to be liquidated as 10+ years have passed since she inherited this IRA from her late dad.

So we do not have any forms, no 1099-Rs, nothing.  We just closed the account and withheld as much tax as we thought appropriate (around 30% between federal and state).  

Is there anything at all that I should denote on my taxes this year?

[MaryK4]

You should have received a 1099-R for the distribution and you do need to report it on your tax return (especially since there was withholding).  Did you clear the account in 2022 or 2023?  Contact Ameritrade and request a replacement 1099-R.

[rkd80]

We cleared the account last week as it occurred to us that doing another RMD is not right.  So we technically cleared the account in 2023...does it belong in our 2022 taxes?

[NCperson]

it belongs as part of 2023 tax return and you will receive a 1099R next year.

Separately, why did you think you needed to liquidate the IRA? there are now 10 year liquidation requirements for inherited IRAs (especially when the IRA passed to someone other than the spouse), but that only impacts situations where the original beneficary passed on or after 1/1/20.  Just curious. 

[rkd80]

So because we did it this year, we will only get the 1099-R for next year's return?  For now, just do nothing about it?

The IRA was handed over in 2011, we only have 10 years to to liquidate it.  Several tax advisors told us we should have done it several years ago.

Btw, I also thought that benficiary IRAs were not subject to the 10 year-rule prior to the SECURE act, but that has been the case for a long time.   My wife is a non-minor child of the deceased, she had 10 years to distribute the account starting with the death in 2011.  I only hope that the 2020 and 2021 covid exemption will allow us to avoid tax penalties.  :crossedfingers:

[dmertz]

Correct, this is 2023 income reportable on your 2023 tax return when you receive the 2023 Form 1099-R next year.

For what it's worth, you are correct that there was no 10-year deadline for completely draining the IRA.  That deadline only applies to IRA of decedents dying after 2019.  But what's done is done and cannot be undone.

Failure to take the RMDs required for 2021 and 2022 is subject to a 50% penalty on the amount required to have been distributed unless the IRS waives the penalty upon your wife requesting such a waiver by following the guidance at the end of the instructions for Form 5329.  There was no COVID waiver of RMDs for 2021, only 2020.  Explanation that failure was due to reinstate annual RMDs after turning them off for 2020 would seem to be a reasonable cause and with the account now having being fully drained, the IRS would almost certainly grant the waivers.

[rkd80]

We had several tax advisors tell us very explicitly that we absolutely had to liquidate the account.  Sources on the internet are a bit confusing, but also point to the fact that all non-spousal IRAs still had a 10 year deadline.  Calculators provided by ETRADE and other brokerages further confirmed that we indeed had to liquidate, one of them suggested it is actually 5 years and not 10.

So for my sanity and my wife's lets assume we had to do this, good to know that this will be something we take care of on next year's return.

I do appreciate you informing me about Form 5329, was not aware of that.  Is that something we can fill out in TurboTax?

[MarilynG1]

You can pull up a Form 5329 in your 2022 return since you didn't take a 2022 RMD, if you know what the RMD amount was supposed to be.  You could also Amend your 2021 return to add it. 

Enter the FORMS mode and click on 'open form'. Type in 5329. Choose 5329-S (for spouse).

Scroll down to Part IX line 52 and enter the RMD amount that should have been taken. On line 53 enter the amount of the RMD that was actually taken (zero since it was missed).

Then in the box right under line 53 "Waiver of Tax Smart Worksheet" enter the same amount as line 52 (the RMD amount). Then click the "Explanation" button and enter the reason for missing the RMD and your statement requesting a waiver.

You will not pay any penalty now until the IRS determines if it will grant the waiver, then they will inform you if you owe the penalty.

Here's more info on Form 5329. 

@rkd80 

[rkd80]

Wow that is perfect, thank you.  What is a reasonable explanation I can provide short of blatant ignorance on the matter that may increase the chance of a waiver.  Is mentioning that the entire IRA has been liquidated a good "explanation"?

[RobertB4444]

Your best explanation would be that it was an oversight that has been corrected for 2023.

@rkd80