IRA Annuity Death Benefit
TIA:
The client is a beneficiary of the deceased mom’s IRA annuity.
The balance amount was sent directly to Schwab FBO the client’s inherited IRA.
The accountant called me because the client received 1099R with distribution code 6, IRA.
The accountant thinks that this is a taxable distribution even though we know it’s not.
What info do I need to give/say to the accountant so the distribution is handled correctly on the 1040?
Thanks
Permalink Submitted by Alan - IRA critic on Fri, 2023-09-08 18:47
Code 6 only applies to NQ annuity 1035 exchanges, and is totally irrelevant to an IRA, and is probably incorrect even if this is a NQ annuity. Are you sure that this is an IRA annuity and not a NQ annuity? Client needs to check with the insurance company, and if this is an IRA, the 1099R should be rescinded.
Permalink Submitted by Geoffrey Kasher on Fri, 2023-09-08 19:38
The distribution code is 4, marked X for IRA It was an IRA
Permalink Submitted by Alan - IRA critic on Fri, 2023-09-08 20:21
If the balance was transferred directly to the inherited IRA account, there should not have been a 1099R. Such transfers are not reportable nor are they taxable. The current 1099R, if not corrected will result in the IRS expecting this to be a fully taxable distribution. First, the client should contact Schwab to confirm that the funds were received in a direct transfer and that the IRS is titled correctly in beneficiary form.
Permalink Submitted by Geoffrey Kasher on Fri, 2023-09-08 20:50
The check was payable to Schwab FBO the inherited IRA. The Bene of the IRA was the daughter Not sure what you mean, that the IRS is titled correctly in beneficiary form.
Permalink Submitted by Geoffrey Kasher on Fri, 2023-09-08 21:07
The check was payable to Schwab fbo Client but did not reference an IRA. However the check was depostited into the Inherited account., This is all documented. Can a 5498 be used ?
Permalink Submitted by Alan - IRA critic on Fri, 2023-09-08 21:14
Checking with Schwab will provide additional confirmation that the inherited IRA was actually funded by a direct transfer. That info provides further documentation that the 1099 R should never have been issued and another reason that the insurance company must correct that 1099 R to 0. Schwab would not have been able to accept the funds if the distribution was payable to the beneficiary as a Code 4.
Permalink Submitted by Geoffrey Kasher on Fri, 2023-09-08 21:46
I will coordinate that on Monday. As always thank you for the help