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child receives IRA as beneficiary at death. Its invest income?


schirallicpa

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When we put money into an IRA, it is our earnings that we are deferring tax on.

Grandparents died and left child as beneficiary on an IRA.

Parents drew from her IRA. She received 1099R. The software is calling it investment income and generating kiddie tax. (Distribution was made from funds of $5000 to cover dental expenses.)

I know she didn't "earn" it, but the grandparents did. Why does the character of the income change?

Any thoughts?

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For Kiddie Tax purposes, the IRS defines Investment Income as everything that is not specifically excluded, and not much is excluded. I think you can find out what has to be included or can be excluded in the instructions to the form. (I think unemployment counted as investment !!) Off to a client's site or I'd look it up.

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