Gail in Virginia Posted March 3, 2017 Report Share Posted March 3, 2017 I have a client whose father died last year. The client took a distribution from the father's retirement account ( I think a 401K but I am not sure) because he was a beneficiary of the account. Fidelity coded the 1099R as 1, premature distribution. I asked the client to call them and get it changed to 4, Distribution due to Death. Fidelity apparently told him that 1 was correct because he was the beneficiary and was under 59 1/2. I wasn't party to this call, but I would have thought Fidelity would know better since they handle so many pension plans. They apparently told my client that he should have transferred the money first if he did not want to pay the penalty. Am I missing something here? Quote Link to comment Share on other sites More sharing options...
ILLMAS Posted March 3, 2017 Report Share Posted March 3, 2017 I have a similar case, TP inherited parents IRA account and TP was penalized for not taking RMD, TP is way under 70 1/2, parent was over 70 1/2. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted March 3, 2017 Report Share Posted March 3, 2017 23 minutes ago, ILLMAS said: I have a similar case, TP inherited parents IRA account and TP was penalized for not taking RMD, TP is way under 70 1/2, parent was over 70 1/2. I believe the TP needed to take an RMD because he was a non-spousal beneficiary and parents were already taking RMD (even if they weren't, he is required to take RMD). Gail, how did your TP manage to take a withdrawal from the 401(k) account after his father's death and before rolling it into his own name or a beneficiary IRA in his name? Was father under 59 1/2? Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted March 3, 2017 Author Report Share Posted March 3, 2017 15 minutes ago, jasdlm said: I believe the TP needed to take an RMD because he was a non-spousal beneficiary and parents were already taking RMD (even if they weren't, he is required to take RMD). Gail, how did your TP manage to take a withdrawal from the 401(k) account after his father's death and before rolling it into his own name or a beneficiary IRA in his name? Was father under 59 1/2? No father was over 59 1/2. Distribution was made directly to the son as the beneficiary named on his father's account. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted March 3, 2017 Report Share Posted March 3, 2017 I think Fidelity is smoking crack, which is an experience I have had with them multiple times recently, unfortunately. 2 Quote Link to comment Share on other sites More sharing options...
jasdlm Posted March 3, 2017 Report Share Posted March 3, 2017 Can you just fix it using a 5329? Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted March 3, 2017 Author Report Share Posted March 3, 2017 26 minutes ago, jasdlm said: Can you just fix it using a 5329? That is my plan but i am tired, its Friday, and I wanted to be sure there wasn't some rule that if you took the money out directly as the beneficiary of a deceased participant it was no longer a death benefit. Which doesn't make any sense to me, but the way this tax season is going a lot of things aren't making sense. Sleep deprivation, I think..... Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 3, 2017 Report Share Posted March 3, 2017 25 minutes ago, Gail in Virginia said: That is my plan but i am tired, its Friday, and I wanted to be sure there wasn't some rule that if you took the money out directly as the beneficiary of a deceased participant it was no longer a death benefit. Which doesn't make any sense to me, but the way this tax season is going a lot of things aren't making sense. Sleep deprivation, I think..... You're thinking is correct, and yes, there are lots of things that aren't going well this season. Ugh! 1 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted March 3, 2017 Report Share Posted March 3, 2017 Gail, you have it correct and Fidelity is wrong. It should have been coded to 4, taxable to the beneficiary with no penalty. And the beneficiary cannot roll it into his own account because he can't co-mingle the inherited funds with his own. The inherited funds have to be withdrawn over within 5 years or set up to be taken over the life expectancy of the beneficiary. Only a spouse can roll the funds into their own account. Fix it on the 5329 and don't lose sleep over it. Tom Newark, CA 1 Quote Link to comment Share on other sites More sharing options...
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