topic Pension Plans in Retirement tax questions

Pension Plans

devonbelle — Fri, 02 Apr 2021 23:07:51 GMT

Is the money I receive from my deceased husband's pension considered "inheritance"?

Re: Pension Plans

VolvoGirl — Fri, 02 Apr 2021 23:10:35 GMT

Not normally. Did you get a 1099R? What code is in box 7?

Re: Pension Plans

devonbelle — Sun, 11 Apr 2021 04:10:09 GMT

Code is 7

Re: Pension Plans

dmertz — Sun, 11 Apr 2021 13:52:28 GMT

No, it's not an inheritance, this is deferred income.

However, code 7 indicates a distribution from an owned account, not a distribution to a beneficiary of an inherited retirement account. Is your name on the Form 1099-R as the payee?

Is the IRA/SEP/SIMPLE box marked? If so, it means that you previously moved the money to your own traditional IRA and the account is now your IRA account, no longer an inherited account.

Re: Pension Plans

devonbelle — Sun, 11 Apr 2021 20:23:37 GMT

My apologies. I gave the wrong Code#. It should be 4 and the IRA/SEP/SIMPLE Box is blank.

Re: Pension Plans

DaveF1006 — Sun, 11 Apr 2021 20:58:35 GMT

Yes. According to this Turbo Tax link written by linaJ2018, " Inherited 401(k) plans are (or eventually will be) taxable but the amount of tax depends on the 401(k) plan rules.

For example, many 401(k) plans require a lump-sum distribution upon the death of the account holder. The surviving spouse can roll the 401(k) into an IRA, but if the beneficiary is not a spouse, s/he might be forced to take a lump-sum payment and the tax bill that goes along with it.

When it comes to inherited IRAs and other retirement plans, the rules can get pretty complicated. When you enter your inherited IRA or retirement plan in TurboTax, we'll ask a series of questions to determine how much, if any, is taxable on this year's return."

Re: Pension Plans

dmertz — Sun, 11 Apr 2021 21:00:54 GMT

"It should be 4 and the IRA/SEP/SIMPLE Box is blank."

That's better. While the code 4 indicates account was inherited, it's still deferred income paid to you as beneficiary that is includible on your tax return.

Re: Pension Plans

sjonesdav99 — Thu, 13 May 2021 20:37:24 GMT

The code is 4

Re: Pension Plans

ToddL99 — Thu, 13 May 2021 21:47:42 GMT

As @dmertz states above "Code 4 indicates the account was inherited. It's still deferred income paid to you as beneficiary that is includible on your tax return."

Re: Pension Plans

chrissy921 — Fri, 11 Feb 2022 15:53:12 GMT

Code in box 7 was 4-death benefit

Re: Pension Plans

JulieS — Fri, 11 Feb 2022 22:44:42 GMT

As the posts above state, if you have a 1099-R with a 4 in box 7, that is an inherited account. Enter the form exactly as it is on your copy, and when you asked if it is an inherited account, answer Yes.

Re: Pension Plans

chrissy921 — Mon, 14 Feb 2022 15:51:35 GMT

Thx for the reply. I deleted the 1099 R and re-entered .... however, it will not ask me the question again. I guess my biggest question if this WAS inherited is it taxable? Shouldn't Turbo Tax be programmed with the 4 in box 7 to know how IRS handles OR does the answer to the question drive that?

Re: Pension Plans

DMarkM1 — Mon, 14 Feb 2022 16:10:25 GMT

Yes, the code "4" in box 7 plus the box 2a being blank and probably box 2b indicating a total distribution (if applicable, but could be blank) would make the distribution non-taxable. You probably wouldn't see the "inherited" question again after your initial entry.

Re: Pension Plans

dmertz — Mon, 14 Feb 2022 20:39:42 GMT

The "inherited" question presented by TurboTax is specific to each 1099-R entered, so deleting and reentering the code-4 Form 1099-R should cause TurboTax to ask the question. Still, it should be an unnecessary question since code 4 already means that the account was inherited. (If someone answers No to this question regarding a code-4 Form 1099-R, TurboTax should flag it as an error and tell the user to contact the custodian to obtain a corrected Form 1099-R if the account is indeed not an inherited account.) TurboTax does, however, need to know if the account was inherited by a spouse beneficiary or a non-spouse beneficiary, information that the user must supply.

Re: Pension Plans

chrissy921 — Mon, 14 Feb 2022 22:26:19 GMT

Ok.....so I am the spouse beneficiary. I am not able to get Turbo Tax to ask the question. What should I do?

Re: Pension Plans

dmertz — Mon, 14 Feb 2022 23:38:25 GMT

TurboTax fails to ask the questions related to distributions from an inherited account if the account is in an employer plan like a pension or a 401(k), but that's not important if the beneficiary is the surviving spouse of the distribution was not rolled over.

A blank box 2a is supposed to mean that the payer does not know how much is taxable and they are also supposed to mark box 2b Taxable amount not determined if the taxable amount is unknown However, some payers mistakenly leave box 2a blank when they know that the taxable amount is zero, and this would be suggested if 2b Taxable amount not determined is not marked. Still, it's unusual for a code-4 distribution from a qualified retirement plan like a pension or a 401(k) to be entirely nontaxable, so I would contact the plan to find out if the blank box 2a was meant to indicate that $0 is taxable.