Distribution from Inherited non qualified annuity not being handled correctly by Turbotax Home & Business for 2024

[Carlin1]

Oh, also: I'm using the on-line software.  It seems to be taking longer for a fix...

[MarilynG1]

Choose 'other qualified account' for your 1099-R entry.  The IRS considers all 1099-R's to be distributions from a retirement account, so even though an inherited annuity is not exactly that, it's considered to be in that category,  and they're all taxed the same regardless.  Just be aware if there is a different amount in Box 1 than Box 2a.

If you're using TurboTax Online, be sure to clear your Cache and Cookies before returning to this section.  You may want to delete/re-enter your 1099-R. 

Here's more info on Distributions from Pensions, Annuities, Retirement Plans.

@rkingrea 

@Carlin1 

[Carlin1]

Hi MarylinG1,

I have tried all of your suggestions, to no avail.  Here is the do-loop I am in:

When I get to the - Is this a 403(c) or other qualified account - question (those are the only two choices, even though the answer is neither) - I choose other qualified account.  That allows me to complete the entry process.

Then, when I go to Federal Review, it gives me an error from the RMD Excess Accumulation Worksheet saying "Type of account should not be selected for this distribution".  It shows "Other" as selected.  I change the selection to "No Entry".  Then the next time I run the Federal Review, it gives me an error on the 1099-R entry saying that I must choose either 403(c) or Other.  

I have been in this do-loop now for many days.  I have been on the phone with two experts, and I've received this suggestion from you.  At this point, the Turbotax software has an obvious error that is preventing me from completing/filing.

Many thanks for continuing to look into this situation.

Carlin

[rkingrea]

I followed the instructions and still have the same do-loop. Clearly there is a problem with the online program.

[Carlin1]

Hi MarilynG1,

Any updates on Turbotax correcting the software error?

Thanks,

Carlin

[Carlin1 · Accepted solution]

rkingrea,

The software has been updated and you can now select a non-qualified option.

Carlin

[MBBU88]

I believe there is still an error glitch in TurboTax's system regarding inherited annuities on Form 4972.   

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 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 increase 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 1099-R issuer so that I can take advantage of the 20% Capital Gains Election (it seems this should be filled in)?  Thank you.

[Mike9241]

from the IRS website https://www.irs.gov/taxtopics/tc412#:~:text=You%20should%20receive%20a 

You should receive a Form 1099-R PDF from the payer of the lump-sum distribution showing your taxable distribution and the amount eligible for capital gain treatment. 

so you need to contact the plan to find out why box 3 was left blank

Only the taxable part of the distribution from participation before 1974 would qualify for capital gain treatment(if you qualify)

[MBBU88]

I should clarify that I'm using the Desktop version of Turbotax.

[MBBU88]

Thanks for the clarification on Box 3 -- appreciated!

Do you have any additional insight on the error messages I'm getting on the 4972 form during the Smart Check?  I have figured out if I don't select "D" for Box 7 Distribution code (and instead, only select "4"), this fixes the issue. Unfortunately, as soon as I select both "4" and "D", the error problem returns for the 10-year tax average option on the 4972.

[dmertz]

This distribution does not qualify to use Form 4972.  See the answer to your separately posted question:

https://ttlc.intuit.com/community/retirement/discussion/re-special-averaging-method-for-inherited-an...