Inherited IRAs
I am the Executor for my parent’s Estate and have several IRAs to distribute evenly between myself and my brother. These are to be deposited into the Estate account and the funds will be dispersed between us.
Since these funds will be paid out to an Estate account, my question is how do I go about receiving 1099R forms for each of us to use for filing our respective income taxes?
Permalink Submitted by Alan - IRA critic on Wed, 2022-02-23 23:08
The IRA custodian cannot force you to take a lump sum distribution from the IRA to the estate, although many would like you to believe otherwise. Instead, as executor you can assign 50% of the IRAs to yourself individually and 50% to your brother. You each end up with your own inherited IRAs, and no taxes are due until you take distributions from your inherited IRAs. Then you will each receive a 1099R. If you are sure that the respective parent did not name any beneficiary of the IRAs and therefore that parent’s estate inherited IRAs, if the parent passed prior to their RBD, the 5 year rule will apply. If parent passed on or after their RBD, then the inherited IRA can be drained over the remaining life expectancy of that parent. Either way, both of you could spread out the taxes over a few years. The estate itself would have no taxable income since the IRA would be assigned before any IRA distributions were made. This approach could be an issue if you have banks as custodians, since some banks do not cooperate with assignments from executors or trustees.
Permalink Submitted by David Mertz on Thu, 2022-02-24 00:38
Presumably there were no beneficiaries designated on these IRAs or your parent explicitly made the estate the beneficiary of the IRAs, otherwise the estate is not involved.
If the estate is the beneficiary and a distribution is made to the estate rather than distributing the inherited IRAs to estate beneficiaries intact as Alan suggests, the estate distributes the money to the estate beneficiaries, reports the income on an estate income tax return, Form 1041, passes this income through to estate beneficiaries on Schedules K-1 for inclusion on the beneficiaries’ tax returns and takes a deduction for Distributable Net Income, generally reducing the estate’s taxable income to zero.
Permalink Submitted by David Zeiss on Thu, 2022-02-24 13:19
Thank you both for that wealth of information. I do appreciate it!!!