My 1099-R reports my entire gross distribution as a taxable amount even though I rolled it into another inherited IRA account. The box 7 distribution code is 4. What now?

If you inherited the IRA form a non-spouse, you cannot treat it as your own. So, you would be taxed on that distribution with that exception of any non-deductible contributions made to that plan.

It means you cannot make any contribution, you cannot rollover any amounts into or out of the IRA, other than 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.  You also must begin receiving distributions from the IRA under the rules for distributions that apply to beneficiaries.

If you received a distribution from an inherited IRA, it is added to your income and taxed accordingly. You will be receiving a Form 1099-R indicating your distribution as a “death distribution” – code 4 in box 7 will be applied.

Please enter this form in the Wages and Income section, as you will be asked additional questions about the decedent. For example, if the decedent made any nondeductible contributions. 

Any nondeductible contributions are treated as return of investment and are not taxable.

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