Terry D EA Posted April 10, 2012 Report Share Posted April 10, 2012 I am trying to understand a calculation made by a previous preparer regarding a 1099R. My client received a 1099R for 2010 from his father's estate in the amount of 115K. Taxable amount in box 2a, 115K box for taxable amount not determined is checked. Distribution code 4. The previous preparer listed this as a trustee to trustee tax free transfer from an inherited IRA. I see no form for this and could only find a statement from the preparer that says this. The 1099R is in my client's name and SS#. Without doing some research on inherited IRA's is this a legitimate way to handle this? Too tired to think Quote Link to comment Share on other sites More sharing options...
Kea Posted April 10, 2012 Report Share Posted April 10, 2012 Even if it wasn't trustee to trustee, if he rolled it into an inherited IRA it would still be tax free. Ask your client if he received the money or what he did with it. I had a similar one this year. Client inherited mom's pension. 1099R showed all taxable and code 4. Client said that the bank took care of it so that it wouldn't be taxable. I talked to the person at the bank (yes, signed written permission since I had to discuss an inherited trust issue at the same time). She pulled it up on the computer and saw that she had transferred it to the client's IRA, caught the error and transferred it to an inherited IRA. Even though she thought she had fixed the error (at that time) and coded it correctly, the 1099R still showed all taxable. She printed the transactions showing that everything was moved to the proper places. (It's kinda nice when your client uses the same bank as you and you both know the person who can help when these questions come up! Also means you can take care of it while making your own deposits and don't have to make a separate trip.) Quote Link to comment Share on other sites More sharing options...
Randall Posted April 10, 2012 Report Share Posted April 10, 2012 It's also nice when the person at the bank actually knows what she's doing. Ha. Many bank and brokerage people only have a cursory knowledge of IRAs/taxes and have no idea what you're talking about. Quote Link to comment Share on other sites More sharing options...
joanmcq Posted April 10, 2012 Report Share Posted April 10, 2012 Was it a spouse inheriting or another beneficiary? A spouse can roll an inherited IRA into their own, but another beneficiary can only roll it to another inherited IRA. It has to be titled in the name of the decedent, ie: IRA FBO Joe Smith, B/O John Smith, deceased. Joe Smith is your client. If it wasn't done this way the whole shebungle is taxed upon withdrawal, and if rolled to their own IRA, they have an overcontribution to boot. Quote Link to comment Share on other sites More sharing options...
Terry D EA Posted April 12, 2012 Author Report Share Posted April 12, 2012 Joan it is a son who inherited his father's IRA. It has been done as a trustee to trustee transfer and I did find documentation supporting this and it is tax free. Can't remember the pub number but it did answer my question. Going forward, any distributions he receives are taxable to him but are not subject to the 10% penalty, hence the code 4 designation. Thanks! Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted April 12, 2012 Report Share Posted April 12, 2012 Doesn't he have to start taking distributions? And if he does not, in the 5th year, it all dumps on his tax return? I think he has to take it over the life of the decedent because only a spouse gets special considerations. I would double check or you might be getting a nasty letter in 6 or 7 years from the IRS. Tom Lodi, CA Quote Link to comment Share on other sites More sharing options...
Kea Posted April 12, 2012 Report Share Posted April 12, 2012 The IRAs I inherited are paying out RMD based on my lifetime. (They seem to think I have around 38 years left. Yeah, right.) Quote Link to comment Share on other sites More sharing options...
joanmcq Posted April 12, 2012 Report Share Posted April 12, 2012 yup, I've got one too...that's why I'm so up on them. for the titling, I just pulled out my statement from the pile o' crap to be filed after the 17th! RMDs every year..but it really helped when I botched my estimates last year. They called me asking if I was sure I filled out the request properly, since I had nearly the whole darn distribution go to withholding. Quote Link to comment Share on other sites More sharing options...
Randall Posted April 12, 2012 Report Share Posted April 12, 2012 Bulldog is right. You have to make the election (to spread over life expectancy) by Dec 31 of the calendar year following year of death. Or you can take nothing up front, but then you must take all of it in 5 years. Small accounts, no big deal, but large amounts, it matters. This is where the Roth really is better if the original IRA owner could pay the tax with other money and not touch the account. No RMDs in his lifetime, nonspouse heirs's distributions spread over their lifetime tax free. Quote Link to comment Share on other sites More sharing options...
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