8606 & IRA Federal Tax Witholding

Submitted by Cheryl Van Beek on Mon, 2016-11-14 18:50

If you opted to have 10% Federal Tax with held from your Non Spouse Beneficiary Traditional IRA RMDs to make sure you paid enough but will be filling out an 8606 for the inherited IRA, does that enable you to get some of that tax back if the decedent from whom you inherited it hadn’t or hadn’t always made deductible contributions? If not, is there another way (standard 1040 etc.) to get some of that 10% tax you had withheld back from those IRA RMDs if you paid more in those taxes than you needed to? Also, you can always take out more than the minimum from Non Spouse Inherited/Beneficiary Traditional IRA RMDs without any problem w/IRS even if you aren’t of age to take them from your own IRA yet, right? Thanks.



Submitted by Alan - IRA critic on Mon, 2016-11-14 20:46

  • Withholding taken on a distribution is just part of the taxpayer’s total amount paid including other withholding or estimates. It does not matter whether the IRA had basis that made part of the distribution non taxable or not. If the total taxes paid in exceeds the tax liability, the taxpayer gets a refund. If the taxpayer owes more, they would just owe less due to the basis.
  • If taxpayer failed to file 8606 forms while living, it is not clear whether the executor could file them retroactively or not. Have never heard of anyone trying to establish basis after IRA owner’s death. Per RR 82-49, it is believed that even if the taxpayer filed these forms retroactively, basis that should have been used up on distributions such as RMDs is forfeited, although executor might be able to file amended returns for the last 3 years, getting a refund. The beneficiary would only inherit basis that would not have been used if the decedent handled all this correctly in the first place. Therefore, it is reasonably safe to assume that if the decedent did not file 8606 forms while living, the basis is most likely forfeited and the beneficiary would not inherit any.
  • Yes, beneficiary can take out as much as they wish in any single year. The only obligation is to take out the RMD amount as a minimum. Falling short of the RMD is the only situation on which there would be a penalty. Age is not an issue for beneficiaries and there is never a 10% penalty on death benefit distributions coded 4 on the 1099R.

Submitted by Cheryl Van Beek on Mon, 2016-11-14 21:17

Your assistance is greatly appreciated. Thank you for the level of detail it is very helpful.

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