1099R

[teresabrink]

I received a 1099R for a distribution from an inherited Roth account. It should be a tax free transaction. The Distribution code on the 1099R that I received is a T which is a Roth with exceptions. When this is used it treats the distribution as taxable. When I use the Distribution code of Q (which an accountant told me it should be) turbo tax records the transaction as a tax free transaction. Did my 1099R come to me incorrectly?

[MarilynG1]

Maybe. Two areas where a Roth Distribution may be shown as taxable in TurboTax that you can check.  In the follow-up questions after you enter the 1099-R, TurboTax asks if the account has been open for at least 5 years.  The Code T on your 1099-R would seem to indicate it has not.  

If you opened a Roth account and transferred the inherited funds, the brokerage automatically gave your distribution a T Code.  Reach out to them to change the code to Q for future distributions, for an inherited account that has been open at least 5 years. 

Try indicating in TurboTax that the account has been open for 5 years and see if this changes the distribution to non-taxable. The question will be 'Opened Before 201..?' in the follow-up questions. 

And you may be asked about your Basis in the Roth Account, which should match your Distribution, if you didn't contribute any additional funds to the account.  These two areas let TurboTax make the 'non-taxable' decision, regardless of whether Code T or Q is used.

Since you don't say when the Roth owner died and whether this is your first distribution (guessing it is), here's more info on Retirement Topics for Beneficiaries. 

[dmertz]

Perhaps you failed to answer Yes when TurboTax asked if this was from an inherited account.  Edit the Form 1099-R and make sure that you have indicated that it was inherited.

If you answer that the account was inherited and indicate that the decedent had a Roth account before 2020 (actually asking if the decedent made their first Roth IRA contribution for some year prior to 2020), TurboTax will automatically treat the distribution as nontaxable.  If you answer No to that question, TurboTax will simply ask you to provide the taxable amount.  If answering No does not result in TurboTax asking you to provide the taxable amount, it means that you failed to indicate that the account was inherited.

[teresabrink]

Thank you. This is exactly what I needed.