It’s critical to set up the inherited IRA correctly. Inherited IRAs must include the name of the original IRA owner (the deceased) as well as a statement that the account is being inherited. For instance, John Doe Jr. Beneficiary IRA, John Doe Sr. passed away on June 1, 2020. An inherited IRA can only be rolled over into the name of the deceased’s spouse. Otherwise, an inherited IRA must be kept distinct from other accounts.
How should inherited IRA be titled?
For the benefit of the beneficiary, a beneficiary IRA must be titled in the decedent’s name. However, there is no one-size-fits-all format for the name. For example, if your name is Kenneth Jones and you inherited an IRA from your brother, Jonathan Jones. You may rename the account “Jonathan Jones, deceased, for the benefit of Kenneth Jones,” but “Jonathan Jones, beneficiary Kenneth Jones” will suffice.
How do I title my IRA?
The titling of an inherited IRA is discussed in this week’s Slott Report Mailbag, as well as the maneuvering of retirement funds through the disclaimer process. To keep your retirement nest egg safe and secure, we recommend that you deal with a qualified, informed financial advisor. Here’s where you may locate one in your region.
My sister died on October 14, 2014, and she gave me her IRA. Recognizing the importance of titling, I’m getting contradicting advice from many ostensibly qualified people. This, in my opinion, is critical!
An inherited IRA’s titling can differ from one IRA custodian to the next. The name of the deceased IRA owner must appear on the inherited IRA account title, and the account title must include the words “beneficiary” or “beneficiary IRA” or “inherited IRA.”
As long as the name of the deceased IRA owner remains on the account and it is evident that this is an inherited IRA, there is no prescribed structure. “John Smith IRA (died 11/27/09) F/B/O John Smith, Jr., Beneficiary” or “Brian Willow as Joan Maple’s beneficiary” are two instances of appropriately titled inherited IRAs.
My father’s estate is in my hands, and I’m the executor. My father, who was 75 at the time, bequeathed his IRA to me, his oldest daughter, as the sole beneficiary. The beneficiary is my younger sister, who is labeled as a 100 percent contingent beneficiary. He married someone who isn’t our mother. He made an unofficial will and told me that he wanted to leave 40 percent of his cash holdings to his wife, 30 percent to me, and 30 percent to my sister in an unofficial will. Is it possible for me to disclaim a portion of my IRA funds, move my share to an inherited IRA account, and designate the remaining percentages to dependent and spouse beneficiaries? Before his death a month ago, he had already taken his RMD. Thank you very much.
You have the option of doing a partial disclaimer of any amount in your IRA. You can’t, however, stipulate which percentages belong to your younger sister. Your sister will receive the entire amount of the disclaimed assets.
How do I title an inherited spousal IRA?
If you are not married and are given an IRA, you must open a new account, which is referred to as a “inherited IRA.” Ensure that the name of this new account complies with tax regulations. “, dead, IRA FBO, Beneficiary” should be the account title (FBO means “for the benefit of”). If you put the account in your own name, the full balance will be recognized as a distribution, and you will be responsible for paying taxes on the lump payment. It’s really difficult to rectify this mistake.
What is an inherited IRA called?
When an individual inherits an IRA or an employer-sponsored retirement plan after the original owner dies, an inherited IRA is created. The beneficiary of an Individual Retirement Account (IRA) might be anyonea spouse, a relative, or an unconnected party or corporation (estate or trust). However, the rules for handling an inherited IRA differ for spouses and non-spouses.
A beneficiary IRA is also known as an inherited IRA. Many of the top IRA brokers can assist you in resolving difficulties such as IRA asset inheritance, taxation, and the continuation of your retirement account status.
The Setting Every Community Up For Retirement Enhancement (SECURE) Act of 2019, which made some important modifications to the regulationsprimarily for heirs other than spousesmade the tax laws regarding inherited IRAs considerably more convoluted.
What do you do with an inherited IRA from a parent?
Many people believe that they can roll over an inherited IRA into their own. You cannot roll an IRA into your own IRA or treat it as your own if you inherit one from a parent, aunt, uncle, sibling, or acquaintance. Instead, you’ll have to put your share of the assets into a new IRA that’s been established up and properly labeled as an inherited IRA for example, (name of dead owner) for the benefit of (name of deceased owner) (your name).
If your mother’s IRA account has more than one beneficiary, money can be divided into separate accounts for each. When you split an account, each beneficiary can treat their inherited half as if they were the only one.
An inherited IRA can be set up with almost any bank or brokerage firm. The simplest choice, though, is to open your inherited IRA with the same business that handled your mother’s account.
Most (but not all) IRA beneficiaries must drain an inherited IRA within 10 years of the account owner’s death, thanks to the Secure Act, which was signed into law in December 2019. If the owner died after December 31, 2019, this rule applies to inherited IRAs.
What happens when I inherit an inherited IRA?
The SECURE Act’s 10-Year Rule reduces the amount of time non-spouse beneficiaries have to distribute assets from their inherited retirement plan once the SECURE Act takes effect. It also reduces the amount of time that most post-SECURE Act Successor Beneficiaries have to distribute funds from inherited (inherited) retirement accounts. However, the Act will actually give a limited fraction of post-SECURE Act Successor Beneficiaries more time to disperse their inherited assets.
There are three possibilities that must be addressed for Successor Beneficiaries in the post-SECURE Act era while assessing the requirements for Successor Beneficiaries. The following are the details:
- Successor Beneficiaries of Non-Eligible Designated Beneficiaries after the SECURE Act
In scenarios 1 and 2, a Successor Beneficiary will normally be subject to the (full) 10-Year Rule (subject to an exception for specific Successor Beneficiaries outlined below). In scenario 3, on the other hand, Successor Beneficiaries will only be able to enjoy any remaining time under the original Non-Eligible Designated Beneficiary’s 10-Year Rule.
Scenario #1: Successor Beneficiaries Of A Post-SECURE Act Eligible Designated Beneficiary
When assessing the impact of the SECURE Act on Successor Beneficiaries, it’s best to start with Successor Beneficiaries who inherit from a post-SECURE Act Eligible Designated Beneficiary (i.e., those beneficiaries who actually can still stretch the inherited retirement account even after the SECURE Act). To be fair, this is unlikely to be the case for the vast majority of Successor Beneficiaries who inherit in 2020 and the years following, as it necessitates:
1) In the year 2020 or later, the original owner of the retirement account dies;
2) The account owner’s beneficiary must be an Eligible Designated Beneficiary (a rather small group in and of itself); and
3) The Eligible Designated Beneficiary’s death before the inherited retirement account’s contents have been dispersed in full.
Nonetheless, the statutory language of the Act makes this the appropriate place to start one’s investigation (the reason for which will become clearer, momentarily).
The SECURE Act added new IRC Section 401(a)(9)(H)(iii), which reads as follows:
When an eligible designated beneficiary dies, certain rules apply. If an eligible designated beneficiary dies before the portion of the employee’s interest to which this subparagraph applies is completely distributed, the exception under clause (ii) does not apply to any beneficiary of such eligible designated beneficiary, and the remaining portion of such portion must be distributed within 10 years of such eligible designated beneficiary’s death.
The mention of “The portion of the SECURE Act that creates Eligible Designated Beneficiaries is referred to as “clause (ii)” in the text above. As a result, new IRC Section 401(a)(9)(H)(iii) basically states: “Any” Successor Beneficiary of an Eligible Designated Beneficiary will not be treated as an Eligible Designated Beneficiary under clause (ii), and instead will be treated as Non-Eligible Designated Beneficiaries, subject to the SECURE Act’s 10-Year Rule.
Example #3: Abbott, a 70-year-old man, acquired an IRA from his 78-year-old brother on February 1, 2020. Abbott was an Eligible Designated Beneficiary as a result, allowing him to’stretch’ distributions across his life expectancy (as he was less than 10 years younger than his brother).
Abbott, like everyone else, will die at some point. If any money remains in the inherited IRA after that,’stretch’ distributions will stop, and the next recipient (the Successor Beneficiary chosen by Abbott) will be subject to the 10-Year Rule. This is true whether Abbott lives 10 weeks, 10 years, or even longer after inheriting the IRA.
It’s also worth mentioning that in the case above, it doesn’t matter who is identified as the successor beneficiary. The SECURE Act’s 10-Year Rule will apply to such person (or corporation). To put it another way, becoming an Eligible Designated Beneficiary of an Eligible Designated Beneficiary is impossible since “any beneficiary” of an eligible designated beneficiary must receive the inherited assets “within 10 years following the death.”
Neither can a Successor Beneficiary continue to receive payouts for the remainder of the initial beneficiary’s life expectancy, as was the case before the SECURE Act went into effect.
Exception For Eligible Designated Beneficiaries Of Spousal (Eligible Designated) Beneficiaries
There may be one exception to the no-Eligible-Designated-Beneficiary-of-an-Eligible-Designated-Beneficiary rule, depending on your interpretation of the Internal Revenue Code. In reality, it’s a question of semantics.
“If the surviving spouse dies before the distributions to such spouse begin, this subparagraph shall be applied as if the surviving spouse were the employee,” according to IRC Section 401(a)(9)(B)(iv)(II).
While a surviving spouse who chooses to remain a beneficiary (often because they are under the age of 59 1/2 and want to maintain penalty-free access to the inherited funds) is treated as an Eligible Designated Beneficiary under the SECURE Act for as long as they live, if they die before required minimum distributions on the inherited account ‘kick in’ (beginning in the year that the original decedent would have turned 72 for deaths occurring after the inherited account), the inherited account
As a result, when such a’surviving’ spouse dies, they are effectively transformed from Eligible Designated Beneficiary to retirement account owner (and, as a result, the no-Eligible-Designated-Beneficiary-of-an-Eligible-Designated-Beneficiary rule still applies, as the next beneficiary is actually the first beneficiary… again!).
As a result, if a surviving spouse dies before the year in which the original post-SECURE-Act decedent would have turned 72, the inherited IRA, 401(k), or other retirement account will be regarded as if they were the original owner. This allows the surviving spouse’s beneficiary to be classified as the first beneficiary, rather than a Successor Beneficiary, perhaps allowing them to become an Eligible Designated Beneficiary (assuming that they otherwise meet the qualifications to be treated as such).
Can you split up an inherited IRA?
There are now basically two sets of rules for inherited IRAs as a result of the SECURE Act, which was passed in late 2019. Which regulations to apply are determined by a) when the original account owner died and b) who is named as the account’s beneficiary.
In addition, the CARES Act, which was passed in March 2020, eliminates the need for IRA withdrawals in 2020, whether inherited or not.
Death in 2020 or Later
We must first assess whether the beneficiary is a “eligible beneficiary” if the IRA owner dies in 2020 or later.
- anybody who is disabled or chronically ill (as defined in IRC 7702B(c)(2)), or anyone who is disabled or chronically ill (as defined in IRC 7702B(c)(2)), or anyone who is crippled or chronically ill
- any specified beneficiary who is at least ten years younger than the account owner.
The previous rules apply if the beneficiary is an eligible beneficiary (see below).
The new rule applies if the beneficiary is not an eligible beneficiary. The new law merely states that the account must be dispersed in its whole within ten years of the original owner’s death. However, the distributions do not have to be uniformly distributed across those ten years. (For example, you could accept no distributions for the first nine years and then distribute everything in year ten.)
Deaths in 2019 or Earlier, As Well as Eligible Beneficiaries
The “old rules” detailed in the rest of this article apply when one of the following conditions exists:
- As mentioned above, the beneficiary is a “eligible beneficiary” who can take advantage of the former (more favorable) regulations.
There are essentially two sets of rules under the “old rules”: one set applies if the dead owner was your spouse, and another set applies to any other named beneficiary. We’ll start with spousal beneficiaries, then non-spouse beneficiaries, and finally instances with many beneficiaries.
Inherited IRA: Spouse Beneficiary
A spousal rollover does not have a deadline. You can own the account as a spousal beneficiary for several years and then choose to conduct a spousal rollover if you want to.
If you execute a spousal rollover, it becomes a regular IRA (i.e., it’s the same as any other IRA you had before), and all of the typical IRA restrictions apply, whether Roth or traditional.
If you keep the account as a spousal beneficiary, the restrictions will be identical to those of a traditional IRA, with a few key exceptions.
First, regardless of your age, you can withdraw distributions from the account without incurring the 10% penalty. If you plan to need the money before you reach the age of 59.5, this is a strong reason to avoid the spousal rollover at least for the time being. (As previously stated, a spousal rollover has no deadline.)
Second, if the inherited account was a Roth IRA, any earnings withdrawals made before the original owner satisfied the 5-year criteria will be taxed (though not the 10 percent penalty).
Third, you must begin taking required minimum distributions (RMDs) in the same year that the account owner would have been obligated to do so. (If the original owner your spouse was obliged to take an RMD in the year in which he or she died but had not done so, you must take it on his or her behalf, calculated as if he or she were still alive.)
Each year, your RMD from the account will be determined using the “Single Life” table in IRS Publication 590-B and your remaining life expectancy.
**
Inherited IRA: Non-Spouse Beneficiary
When you inherit an IRA as a non-spouse beneficiary, it works similarly to a traditional IRA, with three key differences.
Regardless of your age, distributions from the account are not subject to the 10% penalty. (This is the same as if the beneficiary is a spouse.)
If the inherited account was a Roth IRA, any earnings withdrawals made before the original owner completed the 5-year criterion will be subject to income tax, but not the 10% penalty. (The same rules apply to a spouse beneficiary.)
You must take a specified minimum payout from the account each year, commencing the year after the account owner’s death. (If the account owner was obliged to take an RMD in the year of his death but had not done so, you will be compelled to take his RMD on his behalf, computed as if he were still alive.)
The rules for determining your RMD are similar (but not identical) to those for calculating the RMD of a spousal beneficiary. Your first RMD from the account will be determined using the “Single Life” table in IRS Publication 590-B and your remaining life expectancy. In subsequent years, instead of calculating your remaining life expectancy (as a spousal beneficiary would), you simply remove one year from your previous life expectancy. **
Consider this scenario: your father died in 2018 at the age of 65, leaving you his entire IRA. You have no RMD for 2018 (the year of your death). In the year 2019, you will celebrate your 30th birthday. Your remaining life expectancy at age 30 is 53.3 years, according to the Single Life chart. As a result, your 2019 RMD would have been equal to your account balance on December 31, 2018, divided by 53.3.
Your RMD for 2020 would have been equal to the account balance at the end of 2019, divided by 52.3, if the CARES Act had not eliminated RMDs for 2020. (However, the RMD for 2020 would be $0 due to the CARES Act.) The RMD in 2021 will be the balance as of 12/31/2020, divided by 51.3.
Important exception: instead of distributing the account over your remaining life expectancy, you can choose to divide it over 5 years. If you choose to do so, you can collect your distributions in any order you like over the five years for example, none in years 1-3 and everything in year 4.
The new inheriting beneficiary is known as a successor beneficiary if a beneficiary dies before the account is fully dispersed.
If the original account owner died in 2020 or later, and the original beneficiary (i.e., the first person to inherit the IRA) was a “non-eligible” beneficiary, the succeeding beneficiary will have to follow the same distribution schedule as the original beneficiary. That is, the account must be distributed within 10 years following the original owner’s death to the succeeding beneficiary.
If the original account owner died before 2019 and/or the original beneficiary was a “eligible” beneficiary, the successor beneficiary will be required to distribute the account over a 10-year period, but it will begin with the date of the original beneficiary’s death (rather than the date of the original owner’s death).
- Make careful to include both your name and the original owner’s name when renaming the account.
- Do a direct transfer only if you decide to relocate the account to another custodian (from Edward Jones to Vanguard, for example). If you try to do a standard rollover and end up with the cash, it will be treated as if you had distributed the entire account.
Inherited IRA: Multiple Beneficiaries
When multiple beneficiaries inherit an IRA, they are individually classified as non-spouse beneficiaries, and they must calculate RMDs based on the life expectancy of the oldest beneficiary. This is not a good thing because it limits the IRA’s ability to “extend.”
If the beneficiaries divide the IRA into two inherited IRAs by the end of the year following the original owner’s death, each beneficiary can treat his inherited portion as if he were the lone beneficiary of an IRA of that amount. This is advantageous since it implies:
- A spouse beneficiary will be treated as a spouse beneficiary rather than a non-spouse beneficiary, giving them greater distribution possibilities.
- Each non-spouse beneficiary will be able to calculate RMDs based on his or her individual life expectancy.
Note that if the original owner dies in 2020 or later and at least one beneficiary is a “non-eligible beneficiary” (as defined at the start of this article), the entire account must be distributed within 10 years, unless the IRA agreement includes a provision that divides the IRA into separate IRAs for each beneficiary immediately.
- Create a separate account for each beneficiary, with a title that includes both the deceased owner’s and the recipient’s names.
- To transfer assets from the original IRA to each of the inherited IRA accounts, use direct trustee-to-trustee transfers.
A Few Last Words
Before you do anything with an IRA that you have inherited, you must first grasp the applicable rules. Don’t move any money until you’ve figured out what’s going on, as simple administrative errors can be extremely costly.
Also, if you decide to seek advice which I think is a good idea don’t assume that simply because someone is a financial advisor, he or she knows everything there is to know about inherited IRA laws. In this case, I’d recommend looking for someone who has a CPA or CFP qualification.
**If the inherited IRA is a traditional IRA, you are older than the deceased IRA owner, and the deceased IRA owner had reached his “required beginning date” by the time he died, your RMD could be less than the amount calculated above, because you can calculate it using the deceased owner’s remaining life expectancy (from the “Single Life” table) and the owner’s age as of his birthday in the year of death (and reducing by one for each following year).
Can an inherited IRA be split between siblings?
Each sort of IRA recipient has their own set of rules. A spouse, a non-spouse, or an institution such as a trust can all be beneficiaries of an IRA. An IRA beneficiary’s spouse may treat the inherited IRA as if it were his or her own. He or she has the option of rolling the funds over or acting as a non-spouse beneficiary.
The following choices are available to a spouse who is the beneficiary of an inherited IRA from an owner who died on or after the statutory beginning minimum distributiondate:
- Using a life expectancy table, distribute the IRA’s assets across his or her lifetime.
- Distribute the assets according to the owner’s age, starting with the year of death.
When the spouse is the beneficiary of an IRA that was left to him or her by someone who died before the mandatory starting date under the inherited IRA RMD rules, he or she has the following options:
- Within five years of the spouse’s death, withdraw the entire sum.
- Take distributions according to the life expectancy table, with payments not beginning until the owner reaches age 70 1/2 under the inherited IRA RMD rules.
There are certain disadvantages to withdrawing the entire balance by the end of the fifth year. You will have to pay tax on an inherited IRA at your regular income tax rate if you opt to remove the entire amount in one lump sum. This means that cashing out your spouse’s whole account balance could put you in a higher tax bracket in the year you accept the distribution, resulting in you paying more tax on an inherited IRA.
Under the IRA requirements for beneficiaries, a non-spouse beneficiary of an IRA has a few possibilities.
By Dec. 31 of the year following the death of the original account owner, he or she can cash in the whole IRA value or begin drawing required minimum distributions under the IRA RMD rules for beneficiaries.
Instead, he or she can pay it in within five years of the death.
As an IRA beneficiary, examine all of these possibilities. If adistribution pushes you into a higher tax band, you’ll pay a higher rate of inheritance tax in the year you get it. Taking bigger distributions during years when you expect to be in a lower tax bracket may be the best option.
Finally, a non-spouse IRA beneficiary can establish an inherited IRA account to spread out the dividends. An IRA recipient can set up the inherited IRA account and then take the required minimum payouts based on a life expectancy table.
It’s critical to understand the IRA transfer requirements when splitting an inherited IRA between siblings. The IRA custodian should be able to move the monies to separate IRAs set up by the siblings with themselves as beneficiaries.
If an inherited IRA is split between siblings, it’s vital to avoid receiving distributions straight to avoid paying taxes at the time of distribution. You can request a trustee-to-trustee transfer to your inherited IRA account under the IRA transfer regulations so that the money can grow tax-deferred for a longer length of time.
An IRA can also be a beneficiary of an entity like a trust or an estate. If you represent an entity that has inherited an IRA, the entity will most likely be required to accept distributions from the full IRA within five years. The sole exception is if all of the trust’s beneficiaries are persons. In that situation, the distributions may be spread out according to the oldest beneficiary’s life expectancy table.
What do you name a self directed IRA?
That could cost you a lot of money in terms of taxes, legal fees, penalties, and problems. So don’t hold anything in your name personally when you have an IRA asset with us. Instead, give the asset the following name: “American IRA, LLC FBO Account Number” OR “American IRA, LLC FBO Client Name TYPE OF IRA/401k”.
What is the difference between an inherited IRA and a beneficiary IRA?
An inherited IRA is one that you leave to someone after you pass away. The account must then be taken over by the beneficiary. The spouse of the deceased person is usually the beneficiary of an IRA, but this isn’t always the case. Although the inherited IRA laws for spouses and non-spouses are different, you can set up your IRA to go to a kid, parent, or other loved one. You can even direct your IRA to an estate, trust, or a beloved charity.
You have three options with your inherited IRA if you’re the surviving spouse. Rather than making it your own, you can simply identify yourself as the account owner, roll it over into another sort of retirement plan, or treat yourself as the beneficiary. You don’t have the choice to make the IRA your own if you’re a non-spouse inheriting the IRA. Either make a trustee-to-trustee transfer or withdraw the account. You’ll almost certainly have to withdraw the funds within five years of the original account owner’s death.
How long do you have to transfer an inherited IRA?
- When an IRA owner dies, the SECURE Act modified the criteria for dispersing funds from an inherited IRA.
- For non-spousal IRAs, the “stretch IRA” provision has been mostly eliminated. The new rule compels many beneficiaries to take all assets from an inherited IRA or 401(k) plan within 10 years following the death of the account holder for IRAs inherited from original owners who died on or after January 1, 2020.
- In some situations, disclaiming inherited IRA assets may make sense because they could boost the total value of your estate and push you over the estate tax exemption limit.
If you’re the son, daughter, brother, sister, or even a close friend of an IRA beneficiary, it’s vital that youand the IRA ownerunderstand the regulations that govern IRA inheritances.
“With the enactment of the SECURE Act in December 2019, some of the procedures for inheriting and distributing assets upon the death of an IRA owner changed,” explains Ken Hevert, senior vice president of retirement products at Fidelity. “If IRA owners and beneficiaries aren’t diligent, they risk paying greater taxes or penalties, as well as losing out on future tax-advantaged growth.”
As a nonspouse beneficiary, here’s what you need to know about inheriting IRA funds. The criteria for inheriting IRA assets vary depending on your relationship with the IRA’s original owner and the sort of IRA you acquired. Whatever your circumstances, speaking with your attorney or tax counselor ahead of time may help you avoid unwanted repercussions.
Nonspouse inherited IRA owners are normally required to begin taking required minimum distributions (RMDs) no later than December 31 of the year after the death of the original account owner, according to the IRS.
With the passing of the SECURE Act, nonspouse IRA distributions must be completed within 10 years of the account owner’s death. You may previously “stretch” your dividends and tax payments out beyond your single life expectancy if you inherited an IRA or 401(k). For some recipients, the SECURE Act repealed the so-called “stretch” provision.
You don’t have the option of rolling the assets into your own IRA as a nonspouse beneficiary. You have numerous alternatives if you inherit IRA funds from someone other than your spouse:
How do I report an inherited IRA on my tax return?
When an individual taxpayer inherits a traditional IRA from someone other than their spouse, the inherited IRA cannot be treated in the same way as an IRA that the taxpayer owns. Furthermore, if the deceased owner died on or after the date that the deceased owner was obligated to accept minimum distributions from the IRA, the IRA is subject to certain limitations on payments. If the deceased owner had not yet begun to take required distributions, the designated beneficiary may be required to take a distribution from the inherited IRA by December 31 of the fifth year following the deceased owner’s death (or, in some cases, the designated beneficiary must begin a distribution plan based on the beneficiary’s life expectancy within that five-year period). Publication 590-B – Distributions from Individual Retirement Arrangements is a good place to start (IRAs).
When a taxpayer receives a payout from an inherited IRA, they should receive a 1099-R with a Distribution Code of ‘4’ in Box 7 from the financial institution. Unless the dead owner made non-deductible contributions to the IRA, this gross distribution is normally completely taxable to the beneficiary/taxpayer. However, regardless of the beneficiary’s or the deceased owner’s age, a distribution from an IRA to a beneficiary made owing to the death of the original owner is not subject to the 10% early withdrawal penalty.
To enter a distribution from an IRA that was made as a result of a plan participant’s death into TaxSlayer Pro and is reported on a Form 1099-R – Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, and Other Financial Instruments with Code ‘4’ in Box 7, go to the Main Menu of the Tax Return (Form 1040) and select:
- Select New and specify whether the 1099-R Payee is the Taxpayer or the Spouse.
- In most cases, the taxable amount in Box 2a should be the same as the amount in Box 1. Because the Distribution Code in Box 7 is a ‘4’, there is no need to do anything else after quitting this menu. The 10% Additional Tax for Early Withdrawal does not apply when the Distribution Code is a ‘4,’ regardless of the age of the chosen beneficiary.
NOTE: This is a tutorial for entering a distribution code of ‘4’ on Form 1099-R into the TaxSlayer Pro application. This isn’t meant to be taken as tax advice.