Trust is beneficiary of traditional nondeductible IRA
Can a trust recover the cost basis of a traditional nondeductible IRA by the excluding the amount of basis recovered from the distribution it receives? Form 8606 appears to apply only to the 1040 form series and not the 1041.
Permalink Submitted by Alan - IRA critic on Fri, 2017-10-06 23:56
IRA beneficiaries do not lose basis inherited by the IRA beneficiary, whether individual, estate, or trust. You are correct that the 8606 Inst do not include use with Form 1041. While cumbersome, there is probably more than one acceptable way to pass the inherited basis through Form 1041 and K1 such that the K1 contains a breakdown of the taxable and non taxable amounts passed through to each beneficiary. If the trust accumulates the IRA income then the 1041 will need to include some documentation applying the IRA basis to the trust income. Perhaps someone else can clarify the most commonly used method.
Permalink Submitted by Ben Meyer on Sat, 2017-10-07 17:40
The accounting for basis can be done with form 1041 by attaching statements that mirror the logic and calculations done by form 8606, and which address the situation where there are multiiple beneficiaries.