How Can I Enter Form 1099-R - Distributions Due to Death or Disability in ProWeb?
Distribution Due to Death of Plan Participant
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).
You can enter a distribution from an IRA that is an outcome of a plan participant’s death into the Taxx Savage program by following the steps below:
- Go to the Federal Section of a Tax Return
- Proceed to the Income Menu
- Then to the IRA/Pension Distributions (1099R/RRB, SSA)
- Click on Add or Edit a 1099-R
- Key in the Payer Name, Address as well as the EIN.
- In Box 1, enter the Gross Distribution as it appears on the 1099-R
- The amount in Box 2a ought to be similar to that in Box 1a.
- Box 7 should have a Distribution Code of 4. A Distribution Code of 4 leads to the inapplication of the 10% Additional Tax meant for Withdrawal despite the designated beneficiary’s age.
Distribution Due to Disability
A taxpayer who gets disabled prior to attaining the age of 59-½ is able to acquire a distribution from either a qualified pension plan or a traditional IRA without having to worry about the 10% penalty for early withdrawal. Disability in this context must be proven and it must be that the taxpayer is incapable of participating in any economic activity due to either a mental or physical condition. The condition has to be assessed and determined by a doctor or qualified person and it must be that the condition will be long-lasting or last a lifetime. The condition must not be one that the taxpayer is reasonably expected to recover from nor should it be one that is of physical handicapness that does not prevent the taxpayer from participating in a gainful activity.
A Distribution made to a taxpayer due to their disability is entirely taxable to the taxpayer except when the owner had submitted contributions that are non-deductible to the IRA or to a pension plan. Despite the age of the taxpayer, such a distribution cannot get the 10% penalty for early withdrawal.
A distribution made to an individual due to their disability can be reported into the Taxx Savage program when you:
- Go to the Federal Section of a Tax Return
- Proceed to the Income Menu
- Then to the IRA/Pension Distributions (1099R/ RRB, SSA)
- Click on Add or Edit a 1099-R
- Key in the Payer Name, Address and EIN.
- In Box 1, enter the Gross Distribution as it appears on the 1099-R
- Box 2a should have the same taxable amount as that in Box 1.
- When you enter the Distribution Code in Box 7,
- A Code of 3 results in the non application of the 10% Additional Tax for Early Withdrawal. Upon exiting the 1099-R menu, there isn’t any other action that will be required.
- A Code of 1 or 2 will result in the popping up of a Form 5329 Transfer Option. The transfer option should be “Transfer 1099-R Box 2a to Form 5329, Part I, Line 1”. You should then answer YES to the question “Does the Amount being Carried to Form 5329 Qualify for Any Penalty Exclusion?” Select Exclusion #3 that is “Due to Total and Permanent Disability” then key in the gross distribution reported in Box 2a that is eligible for a disability’s exclusion.
The Taxx Savage program will automatically transfer the amount that has been excluded from the 10% Additional Tax for Early Withdrawal into Form 5329. In the Form 1040 of 2019, part of the gross distribution that is to be taxed will transfer to Line 4b or 4d.
Note: This is not Tax Advice. It is a guide on how to enter Form 1099-R issued for distribution due to death or disability into the Taxx Savage Program.
Additional Resources:
Publication 575 - Pension and Annuity Income
Publication 590-B -Distributions from Individual Retirement Plans