1099R code on an inherited IRA
If the beneficiary of an inherited IRA is over 59 1/2, does it matter if the code in Box 7 of the 1099R is a 4 or 7?
If the beneficiary of an inherited IRA is over 59 1/2, does it matter if the code in Box 7 of the 1099R is a 4 or 7?
Permalink Submitted by Alan Spross on Tue, 2008-05-20 17:56
At the end of the day they would not have a penalty, but to eliminate possible IRS inquiry they should:
1) First, request an amended 1099R
2) If no amended 1099R issued they can attach a 5329 to their 1040 showing an exception to the penalty using Code 04.
Permalink Submitted by [email protected] on Tue, 2008-05-20 18:04
Being that the customer is over 59 1/2 is why I posed the queston…there isn’t a penalty with either code in this beneficiary’s case. So, why would they need to file Form 5329 claiming the exception to the penalty? (I think I may be overthinking this one!)
Thank you!
Permalink Submitted by Alan Spross on Tue, 2008-05-20 21:12
No, I am probably the one overthinking it.
The 5329 is just an easy way to tell the IRS up front that code 4 applies even though there is no early withdrawal either way. The 5329 would explain what the IRS should see as an inherent conflict between code 7 and a beneficiary IRA that had previously been reported to the IRS on Form 5498. Code 7 is actually a dump code to be used when no other code applies per the 1099R Inst. With the current system the IRS uses, I agree that there is probably not much chance of any fallout from doing nothing, at worst a harmless inquiry.
Permalink Submitted by Tony L D'Arminio on Wed, 2008-05-21 14:33
If there is a possibility of an estate tax deduction as a result of income in respect of decedent, would it not make sense to have the 1099 corrected to reflect the correct code? I would think that if an estate tax deduction is taken on form 1040, having the 1099 coded correctly would make identifying the income that gave rise to the deduction easier.
Permalink Submitted by Tony L D'Arminio on Wed, 2008-05-21 14:39
As stated earlier, filing form 5329 may accomplish the same goal if it is not possible to have the 1099 corrected
Permalink Submitted by Denise Appleby on Thu, 2008-05-22 08:43
If the form does not show code 4 in box 7, the account may have been coded (set-up) incorrectly. Most systems are programmed to have (a) distributions processed as ‘death distributions and (b) code 4 automatically reflected on the 1099-R when the account is properly set up as an inherited IRA. Proper set up includes proper registration and proper programming on the custodian’s systems.
Incorrect set-up of the account can cause problems with RMD calculations as the custodian may calculate the RMD as if the account is a non-inherited IRA.