Coding on Beneficiary IRA
Hello,
I just wanted to make sure that the custodians of a Bene IRA have coded the transfer correctly. The title of the new account is fine but I want to be sure it is coded correctly now so it does not need to be dealt with later.
Background: Deceased was over 70 1/2 taking RMD’s (Died in 2007 and took 2007 distribution)
Beneficiary: Non-spouse, son, (his 3rd, account was split prior to transfer to him.) He will begin taking distributions based on his life expectancy beginning in 2008 (1st one is planned for July, then in Nov-Dec of the following years.)
Normally when an IRA is transferred it receives a specific code to indicate it as a transfer for tax reporting, much like a qualified plan to an IRA is shown as a rollover distribution.
Is there a specific code to indicate this is a transfer to a beneficiary that would be different than that of a normal custodial transfer? If so what is the proper code to indicate the as such.
Thanks.
EBF
Permalink Submitted by Alan Spross on Fri, 2008-05-30 23:33
There is no distribution activity code to replicate the G code for a direct rollover from a QRP. All distributions from the inherited IRA should be coded with a “4” in Box 7 indicative of a post death distribution.
The actual IRA registration change that I think you are asking about is documented for the IRS and other parties by Form 5498 issued to the decedent and each non spouse beneficiary. Since the registration is done by direct transfer, there is no 1099R issued until a distribution is taken. The deadline for the 5498 is May 31st, but if a delayed notice of death results in missing that deadline, the custodian does not have to catch up until the next cycle.
If the IRA custodian messes up and issues a 1099R as they would for a rollover, it should be requested to be rescinded. If they refuse to do that, the transfer can be reported on Form 1040 as a rollover with evidence and explanatory statement showing it was actually done by direct transfer. A check made out to a new IRA custodian for the benefit of the beneficiary and hand delivered to the new IRA custodian is considered a direct transfer.
Most important, the beneficiary must realize that they cannot do a standard rollover of the funds, and this is a very frequent error that has no solution.