Inherited Non-Spousal Roth IRA RMD
Realizing that an RMD is not required for this, the first year of a inherited, non-spousal Roth IRA, we are looking forward to the RMD which will, under current law, be required next year 2010. Right now the deceased brother’s tax records are not available and may not be available. However we do know that the first contribution to the original owner’s Roth IRA was made in Janaury 2000, a $2,000 contribution for 1999 and a $2,000 contribution for 2000. We strongly suspect there were contributions made for the next three years and probably none thereafter. We do not know if an 8606 was ever filed in the past. I further understand that when RMDs start next year the new owner of the IRA will have to file form 8606 each year to account for the distribution.
Based on the receipt of a 1099-R for tax year 2010, what lines of Part III of the 8606 are completed with what amounts? Any help you can provided would be appreciated.
Permalink Submitted by Alan Spross on Fri, 2009-08-28 22:33
Tom,
The 8606 should not be needed. You know that the Roth is qualified, and so does the custodian if this custodian had the account prior to 2006 (for 2010 5 year holding purposes). If so, any distributions will be coded “Q” (for qualified), and that avoids the 8606 entirely and any IRS questions. The distribution, RMD or otherwise, will go directly on line 15a of Form 1040 with nothing showing on 15b, the taxable line. If change of custodian has occurred, they will need evidence of the pre 2006 existence of his Roth, and that can be provided with a copy of Form 5498 for any of those prior years, showing a contribution. All they need is some evidence of existence prior to 2006 and they should code the 1099R with the Q. But I would not worry too much about convincing the custodian, because the 8606 will still not be needed.
In the final analysis, if the Q code is NOT provided by the custodian for any reason, the 8606 instructions indicate that you still do not need to enter the distribution on line 19 (or attach the form) if you KNOW that there was a contribution prior to 2006. Just show the distribution on line 15a as above. But retain any documentation you may have in the unlikely event the IRS asks. They should not need to ask because THEY have the 5498 on file showing when contributions were made. So the IRS should be able to see from their own records that all distributions would be tax free.
Permalink Submitted by tomd37 on Fri, 2009-08-28 23:46
Thanks for the reply Alan. Right now I don’t know details about the availability of tax records or IRA contribution records. I will contact my son’s widow to see what records she retained after his passing in December 2008. Hopefully she retained everything and I can make a trip there to go through everything. I’d like to get as much of these things lined up now prior to needing the data in the future for tax returns. He left IRA assets to his wife and to his sister.
Permalink Submitted by Alan Spross on Sat, 2009-08-29 01:16
If you cannot get the aging documentation without a major investigation process, but KNOW from personal memory that the 5 year holding period will have been met by 2010, I would just report distributions as tax free on Form 1040 and dispense with the 8606. Since the IRS has the 5498 contribution evidence there, I doubt there would even be a question. You might ask the current custodian but if custodian changed recently, I would not bother trying to get anything from a former custodian. It would be a real project and highly unlikely that the evidence would be needed.
Permalink Submitted by tomd37 on Sat, 2009-08-29 01:38
Yes Alan, the custodian has changed recently from Wachovia Securities to Vanguard. I do have proof (application to Vanguard in January 2000) funding his 1999 and 2000 Roth IRA. Could probably come up with the canceled checks as well. Thank you very much for this, and previous comments, relating to this inheritance. It has been a difficult time for everyone involved; parents, spouse, and sibling, but we are all stronger with this experience in our lives.