Spousal Inherited IRA to take RMD and Then Assume

Forum|Forum|3 years ago
March 15, 2023
2 replies
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My husband died in 2022 and still had some RMD to take. As the spouse, I established an Inherited IRA with my husband as the benefactor. I took the RMD and then Assumed the residual of the Inherited IRA into my own account.

My broker sent a 1099-R (husband as Benefactor, but with my SS #) indicating a Gross Distribution of my husband's ENTIRE IRA with the tax undetermined and Code 4 - Death. How can I use TT to report that I took just the RMD (taxable) and Assumed the rest (not taxable) without showing the ENTIRE amount as Taxable.

Also, since my husband had non-deductible (prior year) contributions and completed 8606 Forms - how do I calculate how much of my husband's 2022 RMD is not taxable? We have Forms 8606 but

What year 8606 Form do I use ( 20021 or a new 2022 that show the impact of the recent RMD)?
What line on that 8606 Form do I reference that shows the non tax portion of the RMD that I should input to TT
What line on that 8606 Form has the New Tax Basis- and do I just add that figure to my own new 8606 Tax

Thank you very much. I am thoroughly confused!!

Best answer by dmertz

Thank you for your response, but I don't see how TT allows you to split it into 2.
It asks you to put in the info that is on the 1099-R that you received.

Are you saying to:

•Make 2 1099-R entries, splitting the distribution.

•Change the distribution code on one from 4 to 7?

That seems like the IRS would see that you didn't match the 1099-R info on your return.

Please explain.

Thank you very much!

Do not change the code in box 7. Both should have code 4. (TurboTax treats code 4 the same as code 7 when the beneficiary is the spouse of the decedent.) Simply split the amounts in boxes 1 and 2a between two 1099-R forms in TurboTax, indicating one is RMD and the other reports a distribution that was rolled over. (If any amount was withheld for taxes, you can allocate that to the 1099s, reporting on the 1099-R for the RMD no more withholding than the gross amount reported on that form and any withholding beyond that on the 1099-R for the rollover.

dmertz

Employee

Assumption of ownership of the remainder of the inherited IRA should have been accomplished by a nonreportable trustee-to-trustee transfer and the gross amount on the Form 1099-R should have been only for the RMD. However, it seems that the broker instead moved the funds into your name by making a distribution of the entire inherited IRA and rolling over to your own IRA the amount in excess of the RMD (not by assumption of ownership). This subjects the distribution to the one-rollover-per-12-months limitation whereas a trustee-to-trustee transfer would not.

As a distribution and rollover, enter the Form 1099-R as received. Indicate that it's an inherited IRA that you inherited as spouse of the decedent. Indicate that part of the distribution was RMD and enter the amount that was RMD. Finally, indicate that you moved the money to another retirement account, that you did a combination of rolling over, converting and cashing out, then enter the amount rolled over to your own IRA. TurboTax will include the entire amount on Form 1040 line 4a but will include only the RMD amount on line 4b and will include the word ROLLOVER next to the line.

tax filingAuthor

Thank you so much. This is really helpful and I certainly appreciate your thorough and quick response!!

I've input info as you suggested and now hae a designation STMT appearing alongside line 4a and not the Rollover Designation you mentioned. Is that okay?

Also, 1040 line 4b doesn't reflect ALL my 1099-R Div as input on the 1099-R individual entries. I'm unable to change to insure I'm reporting gross distributions. Would appreciate your guidance,

dmertz

Employee

The STMT notation implies that there are multiple notations (perhaps ROLLOVER and QCD) and because they will not all fit in the available space they are included on a separate statement that TurboTax will include with your filing.

The gross amounts from Forms 1099-R reporting distributions from IRAs are summed on line 4a, not line 4b. Only the taxable amounts of the IRA distributions are summed on line 4b. Forms 1099-R reporting distributions from other types of retirement accounts are reported on lines 5a and 5b.

dmertz

Employee

Regarding Form 8606, you'll need to prepare 2022 Form 8606 outside of TurboTax to calculate the taxable amount if the RMD distributed from the inherited IRA in 2022, then mail it with your tax return. TurboTax does not support preparing Forms 8606 for inherited IRAs but instead asks you to just enter the taxable amount (which it stuffs into box 2a of TurboTax's 1099-R form). For the amount to include on line 6 of this Form 8606 you'll use the balance that was rolled over to your own IRA, the last balance it had before the inherited account ceased to exist.

The remaining basis shown on line 14 of this Form 8606 becomes an adjustment to your own basis on your own Form 8606 which you'll need to file when you take a distribution from what is now your traditional IRA (which would be a 2022 Form 8606 separate from the one for the distribution from the inherited IRA if you took a distribution from your own traditional IRA in 2022).

tax filingAuthor

Hello dmertz or others!!

I'm still a little confused. As you suggested I created an 8606 outside of TT for my deceased husband and for line 6 used the value of the inherited IRA immediately prior to my assuming.

Now I am creating my own 8606 form. For line 6 (Total Value of all IRAs) do I take the combined year end total of my IRAs AND the one I inherited? (in a sense double counting the inherited value since I used that for my husbands)???

Relative to Basis do I add my husbands new basis to my current new basis for 2022 filing, or do I add my husbands basis to mine next yea???

Many thanks.