1099-R received for Inheritance. Any special treatment?

[MargaretL]

Yes, inherited 1099-R forms do have special treatment; TurboTax will ask you additional questions about the decedent, their 1099-R plan contributions, their age, which consequentially determine how much of the inherited distribution is taxed on your tax return. 

1099-R inheritance tax treatment depends on whether it was inherited from a spouse or not. You may have to pay income tax on the distribution, based on the type of plan and the manner in which contributions were made by the decedent.  While the form 1099-R has a lot of information, you may need more data to determine taxable portion of the distribution.  For example, if the 1099-R is for an IRA, you need to know the basis - the amount of after-tax contributions to the account. If no after-taxes contributions were made (or you don't know it and can't find the information) the entire amount is taxable. If you inherited a traditional IRA from your spouse, you have a choice to treat it as your own or treat yourself as a beneficiary. When the 1099-R is from a non-spouse, you don't have that choice. You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries. If the decedent was required to take RMD (required minimum distribution) - so are you. 

The above is just general outline for inherited 1099-R. Regardless if the amount is taxable or not, you still have to report it on your tax return. When going through TurboTax, be sure to enter the form 1099-R exactly as it appears and answer follow up questions. You'll be asked who it is inherited from, decedent's age and basis (if applicable) and RMD questions.  Your answers will determine it's tax treatment.

To enter 1099-R in TurboTax:

1. Federal Taxes
2. Wages and Income
3. Scroll down to Retirement Plans and Social Security
4. Select IRA, 401(k), Pension Plans (1099-R)

[jenforcer41]

HELLO, I THINK THERE MAY HAVE BEEN A MISUNDERSTANDING.  I DIDN'T INHERIT AN IRA, I INHERITED STOCK THAT I ROLLED OVER TO AN IRA.  THERE WAS NO IRA INHERITED.  NO PAYOUT RECEIVED.  I MAY NEED TO START OVER.  PLEASE RESPOND! 

THANKS YOU!

JHNNIE DALTON

[MarilynG1]

@jenforcer41 You don't owe tax when you inherit the stock. You might or might not owe tax when you sell the stock.

You usually can't transfer stock from a nonretirement account to an IRA.

If you sold the stock and used the funds for an IRA contribution, click this link for more info on Reporting Sale of Inherited Stock. 

Click this link for more info on Reporting IRA Contributions.

[GoNoles]

Hi, 

I inherited a IRA from my mother (paid out to me in March 2021).  She was 74 and her 2020 RMD was paid in Oct/Nov 2020. I received a 1099-R from the payer and entered all the information into TT this morning.  I noted it was inherited and my mother's information and that there weren't any contributions. When I get to the RMD questions it asks "How much of the $ amount was RMD?" and am given the choices of all, part or none.  I am not sure how to answer this since the entire amount was paid out. Would it be none? I believe I've satisfied the RMD with the whole account being closed, but am concerned the govt. will come at me for 50% for not paying the RMD. Please advise and thank you.

[PattiF]

Yes, the answer would be None of this withdrawal was a RMD.

Entering this answer will avoid the 50% penalty. The Lump Sum Distribution that you received will be taxed as ordinary income.

[GoNoles]

Thank you so much. Have a great day!

[GoNoles]

Patti - follow-on question. I entered the info as such and a couple of steps down the line TT asks another question about the same: “Tell us more about this retirement plan distribution” and goes on to state “You need to take a required minimum amount…..or be subject to a 50% tax”. My options are: I received all the RMD for 2021, I did not receive all the RMD for 2021 or I was not required to take an RMD for 2021. This seems counter to the other question? How is this answered based on the situation I noted earlier? Please advise and thank you again.

[JulieS]

You should select the first option, "I received all of the RMD for 2021." Since you liquidated the account, there is no additional RMD to be made.

[GoNoles]

OK - thanks!

[PattiF]

Here is a link to IRS Publication 590 

{Edited February 5, 2022:  6:20 AM PST}

[schomuk]

I have inherited two life insurance policies.  I received 2 1099 R forms.  I did not think these were tabable

[JillS56]

Please clarify what you mean by inherited life insurance.   Were you the beneficiary of the life insurance proceeds?    Also, clarify what the 1099-R forms represent.  Did you inherit these 1099-Rs?    What is the Code Number in Box 7?    

This information will help me give you the correct answer/treatment of both the life insurance and 1099-Rs.

[lrcook15]

My mom who was 85 passed away in Sep 2021. I received a small IRA amount and withdrew the entire amount. How will I answer the questions so I am not taxed at 50%?

[PattiF]

Here are the steps to follow to ensure that you are not taxed at 50%:

1. Enter the details from the 1099-R, Make sure that Box 7 has a Code 4, and that the IRA box is checked. Continue.
2. Do any of these situations apply to you? Check box I inherited this IRA, Continue
3. Who did you inherit this IRA from? Enter name and year passed away, and Continue
4. Did you have nondeductible contributions for this IRA? Check No, you didn't have any nondeductible IRA contributions, Continue
5. When was ??? Born?, Check box for born before July 1, 1949, Continue
6. How much of the withdrawal was a RMD, Check box for None of this withdrawal was a RMD and Continue

@lrcook15