Basis in inherited IRA

Submitted by Tomasz Beer on Mon, 2014-02-17 06:48

My sister an I inherited an IRA from my dad who died in the fall. We split the IRA into two inherited accounts and set it up for a stretch. Before he died, he took most of his RMD for 2013, but not all, so my sister and I took his remaining RMD for the year he died.

A portion of his contributions were not deductible so there’s a basis in the IRA. For the year he died, we need to somehow split the basis between my mom, whose tax return will show the income from his pre-death RMD, and my sister and I, who completed his 2013 RMD. How do we do that properly? Form 8606 really isn’t set up for that. For example an end of the year value is required. By the end of the year, the account was no longer in my parents possession. So does she show the value on the date of death on her 8606?

Suggestions would be appreciated.

This is not too hard to understand the year before death or the year after, but in the he year of death, distributions are partially taken by the deceased and partially by the beneficiaries so it is confusing.



Submitted by Alan - IRA critic on Mon, 2014-02-17 16:50

  • The 8606 instructions do not address this situation, and there can be several variations depending on the individual situation. In your case, your Dad owned this IRA and perhaps other TIRA accounts that you did not inherit. But none of these accounts are his after the DOD. Therefore, your mom should use the DOD value as you indicated for his 8606 reporting distributions prior to death. This determines how much basis is recovered on their joint return for the year of death, and this math must be done before you can determine how much basis you inherited. If your Dad left other IRA accounts that you were not the beneficiary of, his remaining basis must be assigned proprotionately based on the total values of all his IRAs on the date of death. Of course, if this was his only IRA, you would inherit all of his remaining basis after the DOD math for your Mom’s joint return is complete. You would then split that remaining basis 50-50 if you each inherited 50% of this IRA account and use the year end value and inherited basis to complete your own 8606 forms which determine your 2013 taxable amount for the year of death RMD balance.
  • If you did not complete the year of death RMD by 12/31/2013, you need to file a 5329 requesting waiver of the penalty for reasonable cause. You will almost certainly get the waiver. And if you happen to have basis in IRA accounts you own, do not mix it with the inherited IRA basis. If that were the case, you would have two separate 8606 forms, one labeled for your own IRAs and the other for the inherited IRA.

Submitted by Tomasz Beer on Mon, 2014-02-17 22:44

Thank you!

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