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Trust as Beneficiary of Client's IRA


ETax847
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Illinois Client passed away in 2021 and named his trust his beneficiary.  Executor of Trust took a distribution from the Trust Inherited IRA to distribute funds to various beneficiaries named in the Trust.  Is this distribution from the trust taxed at the Illinois level on his IL 1041.  Normally retirement income isn't taxed to the individual in the State of Illinois.   Since it's IL Trust income, is this exempt from taxation? Currently IL 1041 is showing this income as taxable

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Rules for individuals may not be the same for trusts, but if the income was passed out the actual beneficiaries (not designated gifts) on a K1, they might be able to exclude it.

This is why you normally want individuals as bene's for any retirement accounts. Why run it through an estate or a trust?

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I believe the character remains as IRA income which is non-taxable in IL. I presume the K-1 is showing this as portfolio income? If so, the K-1 preparer should have included a footnote that discloses the nature of the portfolio income. If you have a copy of the 1099-R to the trust that could be used as support if Illinois questions the deduction.

 

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11 hours ago, KenO said:

I believe the character remains as IRA income which is non-taxable in IL. I presume the K-1 is showing this as portfolio income? If so, the K-1 preparer should have included a footnote that discloses the nature of the portfolio income. If you have a copy of the 1099-R to the trust that could be used as support if Illinois questions the deduction.

 

I did just this a couple of years ago.  Included comments on the K-1 showing the 1099R info for payer and tax ID.  I entered the amount as retirement income on the Fed 1040 and included that form showing diff between K-1 and 1040 entry.  There was no change in the Fed 1040, just showing on a different line.  But I wanted it to flow to the Ky return as retirement income.

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  • 2 weeks later...

On the K-1 it shows up as "Other Portfolio Income".  Randall, what adjustment did you make on the K-1 or 1040 to have this flow through as retirement income?

On 4/3/2022 at 4:46 AM, Randall said:

I did just this a couple of years ago.  Included comments on the K-1 showing the 1099R info for payer and tax ID.  I entered the amount as retirement income on the Fed 1040 and included that form showing diff between K-1 and 1040 entry.  There was no change in the Fed 1040, just showing on a different line.  But I wanted it to flow to the Ky return as retirement income.

 

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17 hours ago, ETax847 said:

On the K-1 it shows up as "Other Portfolio Income".  Randall, what adjustment did you make on the K-1 or 1040 to have this flow through as retirement income?

 

I didn't make an adjustment on the K-1.  I left the amount in Box 5 (Portfolio Income).  Then put the amount in Box 14 code E as a positive and code H as a negative.  I added a statement for Line (Box) 14 saying that the amount was retirement income, listed the payor and payor tax id number and address.  So preparer of 1040 could make the entry on the 1040.  I was the preparer of the 1040 so I entered it as 1099R income from the info on the K1 statement.  No change for Fed but I wanted the software to carry this amount to Kentucky as retirement income and be eligible for their $31k exemption of retirement income.  I hope this helps.

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