Question

Inherited IRA

Forum|Forum|5 years ago
April 4, 2021
1 reply
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Hello

I inherited funds from an IRA. 100% of the funds were immediately deposited into an inherited 60 month IRA CD. I did this because the Credit Union told me this would prevent me from having to take yearly contributions since I am 54. The 1099R form has the entire distribution as taxable yet it also has both boxes for 2b checked. This money should not be considered income since I rolled it over. I cannot figure out how to remove this from my taxable income.

Thanks

KC

Not A Product Question

macuser_22

Employee

Was it inherited from a spouse? What code is in box 7? Is the IRA/SEP/SIMPLE box checked?

If a non-spouse then the it can only be moved to another account as follows (and a Trustee-to-trustee transfer does not generate a 1099-R.) It is not clear just what the credit union did.

IRS Pub 590-B https://www.irs.gov/publications/p590b#en_US_2020_publink1000230538

Inherited from someone other than spouse.

If you inherit a traditional IRA from anyone other than your deceased spouse, you can't treat the inherited IRA as your own. This means that you can't make any contributions to the IRA. It also means you can't roll over any amounts into or out of the inherited IRA. However, you can make a trustee-to-trustee transfer as long as the IRA into which amounts are being moved is set up and maintained in the name of the deceased IRA owner for the benefit of you as beneficiary.

Like the original owner, you generally won't owe tax on the assets in the IRA until you receive distributions from it. You must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**

2

2020irabsAuthor

Thank you. Based on what I read in the IRS publication the funds were handled correctly.

D

dmertz

Employee

Are you the surviving spouse of the decedent?

One is not permitted to take a distribution from an inherited IRA and roll it over to another inherited IRA. Only a spouse beneficiary is permitted to roll over a distribution from an inherited IRA and the rollover can only be to their own IRA, not to an inherited IRA, claiming the IRA as their own.

The only way that one is permitted to move an inherited IRA to another inherited IRA is by nonreportable trustee-to-trustee transfer. With a trustee-to-trustee transfer, there is neither a distribution nor a rollover. So unless the transaction was actually a trustee-to-trustee transfer and the custodian of the original IRA issued the Form 1099-R by mistake, the movement of the funds was not handled correctly. If the custodian of the original inherited IRA mistakenly issued the Form 1099-R, you need to obtain a corrected Form 1099-R indicating that $0 was distributed.

Also, the information that you got with regard to RMDs appears to be incorrect unless you are a spouse beneficiary and you actually rolled the money over to your own IRA, not to an inherited IRA.

Bank and credit union front-office personnel are often inadequately trained with regard to properly handling this sort of transaction. Were the original custodian and the new custodian both the same credit union?