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Reporting inherited IRA Rolled Over

msindc1
Level 4

Folks:

Joe died and left his workplace retirement account to his friend Mark.  The employer issued a check to Mark for $900,000 and withheld $100,000 for federal income taxes.  Mark then deposited $450,000 into an inherited IRA account and sent $450,000 to a charity.

How do I report this?

The 1099 distribution code is 4, death, and box 2 says the entire amount is taxable.  Which would be true if this were an actual distribution, but instead it was a non-trusteed rollover.

Help?

Micah

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1 Best Answer

Accepted Solutions
qbteachmt
Level 15

"and they can put it in a qualified account, right?"

Not necessarily. Have you read the changes from the past few years, SECURE Act 2, etc? Have you read specifically the tax rules regarding non-spousal inheritance of TSP? TSP, 401(k), IRA, inherited or not, eligible qualified beneficiary, non-eligible qualified beneficiary, etc are all specifically addressed in reference materials. It's not "one size fits all." There are so many variations. They don't all get the same provisions.

Do you know how it is your taxpayer came to have access to the funds?

https://www.tsp.gov/publications/tspbk31.pdf

"Non-spouse Beneficiary. A beneficiary who is not a surviving spouse cannot retain a TSP account. We will establish a temporary TSP account for the non-spouse beneficiary. Payment from this account will be made directly to a non-spouse beneficiary or to an “inherited IRA.”

Note that means no provision for indirect rollover.

"A TSP death benefit paid directly to a non-spouse beneficiary may not be rolled over in to an IRA or plan"

https://www.tsp.gov/publications/tspbk26.pdf

"death benefit—A payment from a TSP account made to a non-spouse beneficiary."

A death benefit is not a distribution qualified for rollover.

"When a beneficiary of a civilian or uniformed services TSP account is a trust or a person who is not the participant’s spouse, the designated portion of the deceased participant’s account is temporarily placed in a separate account. Beneficiaries in this category may request payment once the temporary account is established."

Is that what your taxpayer did? Requested payment? Or, requested direct transfer? Or, went online and made the distribution? How did the charitable amount get made/sent?

"Payment is made automatically in a lump-sum total distribution after 90 days. The IRS
categorizes this as an eligible rollover distribution, but it can only be rolled over to an inherited IRA and only in a direct rollover."

https://fedretire.net/inherited-thrift-savings-plan-tsp-account-guidance-clarifications/

"A temporary account is set up for non-spouse beneficiaries that can be accessed through My Account on tsp.gov to roll over a death benefit payment to an inherited IRA. They can also request a disbursement via a check or deposited directly into a checking or savings account within 90 days.

If the beneficiary doesn’t make a payment election within the allocated time after receiving the determination package, the account will be cashed out via check. A TSP death benefit paid directly to a non-spouse beneficiary can’t be rolled over in to an IRA or plan!"

https://www.irs.gov/publications/p721

"Rollovers by nonspouse beneficiary.

You may be able to roll over tax free all or a portion of a distribution you receive from the CSRS, FERS, or TSP of a deceased employee or retiree if you are a designated beneficiary (other than a surviving spouse) of the employee or retiree. The distribution must be a direct trustee-to-trustee transfer to your IRA that was set up to receive the distribution. The transfer will be treated as an eligible rollover distribution and the IRA will be treated as an inherited IRA."

Does he have this explanation you can refer to:

"Written explanation to recipients.

The TSP or OPM must provide a written explanation to you within a reasonable period of time before making an eligible rollover distribution to you...

Reasonable period of time.

The TSP or OPM must provide you with a written explanation no earlier than 90 days and no later than 30 days before the distribution is made. However, you can choose to have the TSP or OPM make a distribution less than 30 days after the explanation is provided, as long as the following two requirements are met.

  • You have the opportunity, for at least 30 days after the explanation is provided, to consider whether or not you want to make a direct rollover.

  • The information you receive clearly states that you have the right to have 30 days to make a decision.

Contact the TSP or OPM if you have any questions about this information."
*******************************
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View solution in original post

9 Comments 9
PhoebeRoberts
Level 11
Level 11

Enter $450,000 as an indirect rollover.

Screenshot 2024-04-05 141137.jpg

qbteachmt
Level 15

You mention "inherited IRA Rolled over" but you told us it is a workplace retirement account. Are you sure that is not a 401(k)? Because you can't roll a 401(k) under these circumstances, not even directly, much less indirectly. And your taxpayer made the charitable donation himself?

*******************************
"Level Up" is a gaming function, not a real life function.
msindc1
Level 4

Sorry, I was using shorthand.  It is a Thrift Savings Plan account.

I don't understand your comment about not rolling over a 401(k).  Normally you do a trustee-to-trustee transfer, but if, say, a former employer sends you a check with the balance of your 401(k) you can send it on to your investment company and they can put it in a qualified account, right?

0 Cheers
PhoebeRoberts
Level 11
Level 11

Inherited stuff has different rules. 

 

Fortunately, https://www.tsp.gov/for-beneficiaries/beneficiary-distributions/ indicates that inherited amounts are eligible to be rolled into an inherited IRA.

msindc1
Level 4

Phoebe:

You are ridiculous.  You always have the answer, you always take the time to contribute.  This forum is SO MUCH better because of your contributions.

Thank you!

But there's a wrinkle.  The 1099-R was issued to the decedent's trust, and the 1041 input screen does not have a rollover option!  Does the fact that the distribution check was addressed to the decedent's trust make it impossible to do this?

Micah

0 Cheers
qbteachmt
Level 15

"and they can put it in a qualified account, right?"

Not necessarily. Have you read the changes from the past few years, SECURE Act 2, etc? Have you read specifically the tax rules regarding non-spousal inheritance of TSP? TSP, 401(k), IRA, inherited or not, eligible qualified beneficiary, non-eligible qualified beneficiary, etc are all specifically addressed in reference materials. It's not "one size fits all." There are so many variations. They don't all get the same provisions.

Do you know how it is your taxpayer came to have access to the funds?

https://www.tsp.gov/publications/tspbk31.pdf

"Non-spouse Beneficiary. A beneficiary who is not a surviving spouse cannot retain a TSP account. We will establish a temporary TSP account for the non-spouse beneficiary. Payment from this account will be made directly to a non-spouse beneficiary or to an “inherited IRA.”

Note that means no provision for indirect rollover.

"A TSP death benefit paid directly to a non-spouse beneficiary may not be rolled over in to an IRA or plan"

https://www.tsp.gov/publications/tspbk26.pdf

"death benefit—A payment from a TSP account made to a non-spouse beneficiary."

A death benefit is not a distribution qualified for rollover.

"When a beneficiary of a civilian or uniformed services TSP account is a trust or a person who is not the participant’s spouse, the designated portion of the deceased participant’s account is temporarily placed in a separate account. Beneficiaries in this category may request payment once the temporary account is established."

Is that what your taxpayer did? Requested payment? Or, requested direct transfer? Or, went online and made the distribution? How did the charitable amount get made/sent?

"Payment is made automatically in a lump-sum total distribution after 90 days. The IRS
categorizes this as an eligible rollover distribution, but it can only be rolled over to an inherited IRA and only in a direct rollover."

https://fedretire.net/inherited-thrift-savings-plan-tsp-account-guidance-clarifications/

"A temporary account is set up for non-spouse beneficiaries that can be accessed through My Account on tsp.gov to roll over a death benefit payment to an inherited IRA. They can also request a disbursement via a check or deposited directly into a checking or savings account within 90 days.

If the beneficiary doesn’t make a payment election within the allocated time after receiving the determination package, the account will be cashed out via check. A TSP death benefit paid directly to a non-spouse beneficiary can’t be rolled over in to an IRA or plan!"

https://www.irs.gov/publications/p721

"Rollovers by nonspouse beneficiary.

You may be able to roll over tax free all or a portion of a distribution you receive from the CSRS, FERS, or TSP of a deceased employee or retiree if you are a designated beneficiary (other than a surviving spouse) of the employee or retiree. The distribution must be a direct trustee-to-trustee transfer to your IRA that was set up to receive the distribution. The transfer will be treated as an eligible rollover distribution and the IRA will be treated as an inherited IRA."

Does he have this explanation you can refer to:

"Written explanation to recipients.

The TSP or OPM must provide a written explanation to you within a reasonable period of time before making an eligible rollover distribution to you...

Reasonable period of time.

The TSP or OPM must provide you with a written explanation no earlier than 90 days and no later than 30 days before the distribution is made. However, you can choose to have the TSP or OPM make a distribution less than 30 days after the explanation is provided, as long as the following two requirements are met.

  • You have the opportunity, for at least 30 days after the explanation is provided, to consider whether or not you want to make a direct rollover.

  • The information you receive clearly states that you have the right to have 30 days to make a decision.

Contact the TSP or OPM if you have any questions about this information."
*******************************
"Level Up" is a gaming function, not a real life function.
qbteachmt
Level 15

"The 1099-R was issued to the decedent's trust, and the 1041 input screen does not have a rollover option!  Does the fact that the distribution check was addressed to the decedent's trust make it impossible to do this?"

Yes, that's yet another detail that matters.

Somewhere on this forum we discussed that the Trust or Estate can protect an IRA account for inheritance by requesting that the disbursements go into account(s) for the beneficiaries set up as inherited IRA accounts.

However, that doesn't seem to have happened here. It seems you have a plain distribution.

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PhoebeRoberts
Level 11
Level 11

Ah, good point - I agree, you can't do an indirect rollover from an employer plan to an inherited IRA - it has to be direct. Excess contribution, bummer.

qbteachmt
Level 15

"Excess contribution, bummer." Yes; totally disallowed account.

"Mark then deposited $450,000 into an inherited IRA account"

Mark needs to get a corrective distribution. Hard to know what else has happened, but it all needs to be reported and unwound.

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"Level Up" is a gaming function, not a real life function.