Form 1099-R - Distribution Due to Death of a Plan Participant
What is Form 1099-R - Distribution Due to Death of Plan Participant for?
A traditional IRA inherited by an individual taxpayer from someone else other than their spouse cannot be treated in the same way as an IRA that they own. An inherited IRA is subject to various limitations depending whether the deceased owner died before, on or after the required date for taking minimum distributions from the IRA.
In the event that the deceased owner was not yet eligible to take required distributions, then, the designated beneficiary may be required to wait for five years from the death of the deceased owner to take the inherited IRAs distribution. This can be done within that fifth year. In certain situations, the designated beneficiary may be required to start a distribution plan dependent on their life expectancy within the five year period. Check out Publication 590-B - Distributions from Individual Retirement Arrangements (IRAs).
A taxpayer receiving a distribution from an IRA that is inherited should also receive a 1099-R from the financial instruction, with Box 7 having a Distribution Code of 4. This gross distribution is entirely taxable to its beneficiary/taxpayer. The only exception to this is if the deceased owner had made nondeductible contributions to the IRA. An IRA distribution to a beneficiary made as a result of the Death of the original owners is not penalised for early withdrawal (10% early withdrawal penalty), regardless of the beneficiary’s age or that of the deceased owner.
To enter an IRA Distribution made due to the death of a plan participant reported on Form 1099-R - Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. with Code 4 in Box 7:
- Go to the Main Menu of the tax return (Form 1040)
- Proceed to Income Menu
- Then select IRA, Pension Distributions (1099R, RRB -1099-R)
- Select New then indicate whether the Payee on the 1099-R is the Taxpayer or their Spouse
- Enter the EIN, Name and Address of the Payer
- In Box 1, enter the Gross Distribution as it is on the 1099-R
- Box 2a and Box 1 amounts should be the same. A Distribution Code of 7 results in Code 4, which then requires no further action after you exit this menu. Despite the age of the beneficiary, a Distribution Code of 4 exempts the application of the 10% Additional Tax for Early Withdrawal.
Note: This is not tax advice. It is a guide on how to enter Form 1099-R that has a distribution code of 4 into the Taxx Savage Pro program.
Additional Resources:
Publication 575 - Pension and Annuity Income
Publication 590-B -Distributions from Individual Retirement Plans