Total balance of Rolled over IRA account on 1099 R for distribution?

Submitted by Cheryl Van Beek on Sun, 2018-05-13 16:27

If a spouse inherits a traditional IRA from her husband and sets up a new IRA account putting the IRA proceeds from the deceased’s IRA into an IRA (with only her name in the title) with the same Custodian— which I believe is called a Rollover– and it correctly shows a code of 4 in box 7, and also says, “Total Distribution” “Taxable amount not determined,” is it correct that the 1099R for this new IRA shows the total account balance ?

If so, how would the IRS know that this wasn’t a lump sum cash payment instead of a tax free Rollover and expect tax on that total amount instead of on an RMD distribution? They did issue a 5498 which says, “Rollover Contributions” for the total account balance. Would this clarify so IRS would not think the entire “distribution” should be taxed as a lump sum when in fact it was a spousal Rollover? When others have inherited IRAs as Non spouse Beneficiaries, only the final RMD from the original IRA was listed as “Total Distribution” (as in closing the account) not the entire account balance, but maybe spousal IRAs are different in this way too?

If this is alright, should the total distribution from all her IRAs including the Rollover would be entered on Line 15a , with “Rollover” entered next to line 15b, and then the amount from her other IRA which wasn’t a Rollover (and thus taxable) to the right of “rollover?” Thanks for any help you can offer.



Submitted by Alan - IRA critic on Sun, 2018-05-13 20:22

  • While referred to as the “spousal rollover”, if done correctly there will be no 1099R and the one permitted actual rollover will not be used up. In this case, the surviving spouse should advise the custodian that they are electing to assume ownership of the inherited IRA. There is no distribution made or reported, no 1099R, and if the amount is transferred to another owned IRA of the surviving spouse, that is also a non reported direct transfer. The custodian did not handle this appropriately, as a 1099R would only be needed if a distribution check was made out to the surviving spouse.
  • Unless the custodian rescinds the 1099R and 5498, the surviving spouse will have to report this as a rollover on line 15, but does the spouse have a rollover available? Only 1 allowed over 12 month period.
  • There are also RMD implications. A code 4 distribution means that the amount of the beneficiary RMD cannot be rolled over. But in any year after the year of death, if the spouse elects to assume ownership the RMD for that year uses the Uniform Table, not the single life table. Therefore, the issuance of the 1099R may also have increased the RMD for the year.

Submitted by Cheryl Van Beek on Sun, 2018-05-13 20:51

Thank you I had a feeling it was done wrong. Also, I’m sorry but would you please clarifywhat you mean by ” A code 4 distribution means that the amount of the beneficiary RMD cannot be rolled over? “

Submitted by Alan - IRA critic on Sun, 2018-05-13 21:12

If the surviving spouse would have been required to take a beneficiary RMD, a distribution includes that RMD. An RMD can never be rolled over once distributed. The code 4 indicates a distribution made to a beneficiary, not to an owner. Electing to assume ownership would have eliminated a distribution, but even if a distribution was reported it would be a code 7 (normal) and the RMD would have been the lower owner’s RMD (if surviving spouse was 70.5 or more).

Submitted by Cheryl Van Beek on Mon, 2018-05-14 00:30

No 8606 is being done, so to confirm, on line 15a she’d report total amount shown on 1099Rs and then on 15b she’d report the taxable amount of her own distribution? Also, since 5498 says “Rollover Contributions” for the total account balance, will the IRS likely know that the rollover was nontaxable–that this wasn’t a lump sum cash payment instead of a tax free Rollover and not expect tax on that total amount instead of on an RMD distribution? Thank you so much for your time, detail and help.

Submitted by Alan - IRA critic on Mon, 2018-05-14 02:23

  • Any inherited IRA RMD is not eligible for rollover, but it is not clear if she had to take an inherited IRA RMD. For example, if deceased spouse would not yet have reached 70.5, there is no RMD required. However, if there WERE an inherited IRA RMD due, the following example will answer your question.
  • Inherited RMD 7000. DIstribution 100,000. Line 15a would be 100,000, line 15b would be 7000, and “rollover entered next to 15b. In addition, since that 7000 RMD was rolled over it must be treated as an excess IRA contribution and corrected in the usual manner by asking the custodian to return 7000 of the rollover with allocated earnings. The 1099R for that corrective distribution will be issued next January but coded to apply to 2017, so the amount of the corrective distribution must be added to 15a with the earnings added to 15b. The earnings would be subject to penalty if surviving spouse is under 59.5. 
  • Given all this hassle, a compliant should be filed with the custodian for mishandling the spousal rollover and issuing a 1099R instead of just doing a non reportable transfer. However, I doubt that the custodian will agree to rescind the 1099R/5498 and treat this as the transfer it was. Are you sure that she even has an available rollover (did not do a 60 day rollover of any distribution in the 12 months prior to the spousal rollover?

Submitted by Ben Meyer on Mon, 2018-05-14 15:54

  • The most important thing here is Alan’s last sentence in the above.  If there was no other 60-day, or indirect, rollover performed on any IRAs of this person in the year preceeding the distribution from the decedent’s IRA, then there is no major issue at this time.  In this situation, the only issue would arise if the RMD had not yet been taken from the decedent’s account.  If that is the case the solution is simple.  It must be withdrawn with allocated earnings as Alan described.  Going forward in this situation the person involved must also be careful not to perform any 60-day rollover for the one year period after the distribution date; that would be the only drawback.
  • Again, the only complex problem would arise if the same person actually did make a previous 60-day rollover berween IRA accounts in the one year period before the distribution date from the decedent’s IRA.

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