Special averaging method for inherited annuity

MBBU88 — Wed, 21 May 2025 04:25:54 GMT

I received a 1099-R for an inherited annuity and Box 7 has distribution code "4D" indicated. There is no amount in Box 3. I believe I qualify for the tax treatment advantages of lump-sum distribution and am eligible for the special averaging method of form 4972 (in other words, I meet the criteria of: I received a qualifying lump-sum distribution, I did not roll over any part of the distribution, the decedent was born in 1930, and I have never used the form 4972 before).

Yet during the TurboTax "Smart Check", I am receiving an error message that says: "Elect Special averaging box should not be checked, Box 7 codes indicate a distribution that is not eligible for averaging or the capital gain election." If I uncheck the "Elect Averaging" box during this SmartCheck (which then unchecks "D1 Check if using 10-year averaging or making Capital gain election for this distribution" on the 1099-R tax form), I lose the tax advantages of using form 4972 and my federal taxes due increases significantly.

Since I believe I do qualify to use form 4972, can you please help me understand why I'm getting this error during TurboTax's "Smart Check"? Also, should I request a corrected 1099 with an amount in Box 3 from the issuer? Thank you.

Re: Special averaging method for inherited annuity

dmertz — Wed, 21 May 2025 12:08:12 GMT

The special 10-year option only potentially applies to lump-sum distributions from qualified plans. The code D indicates that the distribution that you received is from a nonqualified plan and therefore does not qualify for the use of the special 10-year option (or any option on Form 4972).

topic Re: Special averaging method for inherited annuity in Retirement tax questions

Special averaging method for inherited annuity

Re: Special averaging method for inherited annuity