How many 8606s to file and basis question

Submitted by Cheryl Van Beek on Mon, 2017-03-27 00:03

In this case: a non-spouse Beneficiary inherits 3 Traditional IRAs; two are at the same custodian, but one of those two is inherited as a sole designated beneficiary and the other is inherited as a sole successor beneficiary; the third IRA inherited as a designated beneficiary is with a different Custodian; additionally, in 2016 two distributions were taken by the inheriting beneficiary from this account because one distribution was taken to satisfy the deceased’s RMD for 2015 (that was not cashed before passing away, estate hadn’t opened yet and custodian reissued that 2015 RMD back to deceased’s account, correcting 1099-R etc. beneficiary is also sole beneficiary of the estate anyway), so the beneficiary took that distribution as well as her own 2016 distribution from that account; how many 8606s must be filed?
Does the inheriting beneficiary use one 8606 for the two on which she was designated beneficiary (even though the accounts are with two different custodians and two distributions were received from one of those custodians) and a second 8606 for the IRA she inherited as a Successor Beneficiary?
This may not be relevant but, the inheriting beneficiary does not do an 8606 for her own IRA because she is not of age to take RMDs and is not making a contribution to a traditional IRA.
Also, does the inheriting beneficiary continue to use the basis that the previous owner had used on their 8606s on these 8606s that the beneficiary will be filing for the IRAs they inherited? Thank you.



Submitted by Alan - IRA critic on Mon, 2017-03-27 02:24

  • Form 8606 applies across the board to all IRAs owned by the same decedent. The IRA inherited as a successor beneficiary originated from a different owner, so it that IRA has basis it would require a separate 8606 from the 8606 that applies to the inherited IRAs as designated beneficiary. Further, the successor beneficiary IRA should not be combined with the others since the original owner is different, the RMD divisor is different, and the basis % is different. RMDs can be aggregated between the two IRAs inherited as a designated beneficiary. The custodians holding these accounts are irrelevant.
  • The unrecovered basis will be indicated on the tax return of the owner or primary beneficiary and the current beneficiary inherits the remaining basis. The respective 8606 is applied in the same manner for the year of death RMD of the owner as for any beneficiary RMDs.
  • However the tax return is filed, each 8606 must be identified with respect to the 1099R for that distribution. An explanatory statement would probably be needed since it is unlikely that tax programs support multiple 8606 forms. It is rare that someone would inherit IRAs from owners who both had basis in their IRAs. Not sure if I addressed all your questions.

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