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Reporting an inherited IRA with a K-1 (1041)?

Forum|Forum|6 years ago
August 23, 2019
2 replies
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I inherited an IRA from my deceased father. I understand that I need to complete a K-1 (form 1041) to report the inheritance? Is that right? I emptied the IRA as a lump sum to avoid any penalty. Should I also receive a 1099R for reporting?

Best answer by dmertz

Since the distribution was payable to the estate (by default), the estate (or you as executor of the estate) receives the Form 1099-R, with the taxable amount (usually the entire amount) reportable on the estate's income tax return, Form 1041 line 8, Other income. This Distributable Net Income distributed to the beneficiaries of the estate is passed through to the beneficiaries in box 5 of a Schedule K-1 (Form 1041) issued to each of the beneficiaries for inclusion as income on the beneficiaries' individual tax returns. The estate will get a deduction for the DNI on Form 1041 line 18 so the estate will not get taxed on the DNI.

Note that you did not receive a distribution from the IRA, the estate received the distribution from the IRA. You and your brothers are receiving distributions from the estate. The money you and your brothers receive is simply ordinary income. With respect to you and your brothers, the income retains no characteristics of having originated from an IRA and will be reported on Schedule E of your individual tax returns.

VolvoGirl

Employee

You will get a 1099R for the IRA from the plan. You get a 1041 K-1 from the Estate/Trust. Are you the one that needs to prepare the 1041 estate return?

G

gwmerritt11Author

Thank you for the quick response, @VolvoGirl ! Yes, I am the executor for the estate. My 2 brothers also received equal percentages (i.e., 33%) of the IRA funds.

VolvoGirl

Employee

We better ask @dmertz

D

dmertz

Employee

Was the estate the beneficiary of the IRA or instead were you and your brothers the designated beneficiaries on the IRA account? (The fact that you were able to empty the IRA suggests that the estate was the beneficiary, but I want to make sure that that was the case since you also said "I" inherited an IRA, which is inconsistent with a distribution to the estate.)

If the estate was the beneficiary, did you have agreement from the heirs of the estate for the estate to receive a distribution of the entire inherited IRA?

G

gwmerritt11Author

Thank you, @dmertz , for your reply. Neither I nor my brothers were beneficiaries of the IRA. So I guess, in answer to your question, the estate was the beneficiary. Also, my brothers and I were the sole heirs of the estate (although there was no will that identified that -- our mother had already passed away, so we were the sole heirs of the entire estate).

D

dmertzAnswer

Employee

Since the distribution was payable to the estate (by default), the estate (or you as executor of the estate) receives the Form 1099-R, with the taxable amount (usually the entire amount) reportable on the estate's income tax return, Form 1041 line 8, Other income. This Distributable Net Income distributed to the beneficiaries of the estate is passed through to the beneficiaries in box 5 of a Schedule K-1 (Form 1041) issued to each of the beneficiaries for inclusion as income on the beneficiaries' individual tax returns. The estate will get a deduction for the DNI on Form 1041 line 18 so the estate will not get taxed on the DNI.

Note that you did not receive a distribution from the IRA, the estate received the distribution from the IRA. You and your brothers are receiving distributions from the estate. The money you and your brothers receive is simply ordinary income. With respect to you and your brothers, the income retains no characteristics of having originated from an IRA and will be reported on Schedule E of your individual tax returns.