Closing Out an IRA of Deceased Holder & Distributing to Beneficiary’s estate

Submitted by Cheryl Van Beek on Sun, 2017-12-10 00:29

If you are closing out a traditional mutual fund IRA of a deceased holder and distributing it to the beneficiary of the account which is an estate because the beneficiary survived the original owner but had not taken ownership before passing away, is there anything to make sure of or that is wise to specify or request tax wise per the IRS? Does this lump sum still count as a distribution–all of which should be reported as “death distributions” with a code 4 in Box 7 of IRS Form 1099-R. Or does this not apply here—maybe an estate doesn’t get a 1099-R? Thanks.



Submitted by Alan - IRA critic on Sun, 2017-12-10 17:01

It wlll be a reported distribution on Form 1099R Code 4 as usual, and the estate will pass the distribution through to the estate beneficiaries on a K 1.  However, was the distribution agreed on as opposed to having the IRA assigned to the estate beneficiaries? That should be just as possible for the estate of the beneficiary as it is for the estate of the IRA owner, although the IRA agreement may have overriding provisions in this situation.

Submitted by Cheryl Van Beek on Sun, 2017-12-10 18:28

There’s only 1 beneficiary of the beneficiary’s estate, the appointed Personal Rep.–the same person who is closing the account & taking the lump sum (for simplicity since it was a small amount). So wouldn’t the lump sum get reported on 1099R to the estate of the first deceased beneficiary of the IRA? Or, are you saying that it goes into the estate but then gets passed through to the beneficiary of that estate and that person gets the 1099 R? Either way, someone (estate or beneficiary of estate) would get 1099R for whole distribution w/code 4 right? Thanks.

Submitted by Alan - IRA critic on Sun, 2017-12-10 20:26

Yes, the 1099R code 4 is issued to the estate of the beneficiary who last passed under that estate EIN. The distribution will be reported as income on the estate 1041 but that income is offset by the distribution from the estate to the estate beneficiary reported on the K 1. That beneficiary will report the K 1 income and pay taxes on their personal 1040. Not worth the assignment of the IRA prior to the distribution in this case of a small value balance like this.

Submitted by Cheryl Van Beek on Tue, 2017-12-12 00:24

Thanks for your help.

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