RMD from TSP

Submitted by Patricia Giroux on Tue, 2022-02-22 16:24

Myself & 2 siblings inherited Mom’s Traditional TSP acct. She died in 2021 w/o taking her 2021 RMD. TSP divided the acct by 3 and withdrew Mom’s 2021 RMD from each of us. The remainder funded 3 inherited IRAs (I will use the stretch exception). I received 2 1099Rs, one for the rollover, the other for the RMD. Upon entering the RMD 1099-R into H&R Block tax software, a series of questions, (also found on Form 4972), came up. The program generated a Form 4972 for lump sum distribution instead of just putting the amount on 1040 line 5a & 5b. The 1099 showed a Total Distribution and box 9a listed 33% of total distribution. Assuming I answered the questions correctly, is it correct to use Form 4972? The RMD was received via check but the remainder inherited TSP acct, was rolled over into the inherited IRA. Is the RMD still a Lump Sum Distribution? Tried to review Pub 575 but looks like it’s not finalized yet?



Submitted by David Mertz on Tue, 2022-02-22 17:53

This does not qualify as a lump-sum distribution because part of the distribution from the TSP was rolled over to an inherited IRA.  Answering Yes to the tax software’s question that asks if you rolled over any part of the distribution should have eliminated Form 4972 from your tax return.

Submitted by Patricia Giroux on Tue, 2022-02-22 18:30

Thanks for the clarification!  I appreciate your help.

Submitted by Patricia Giroux on Tue, 2022-02-22 18:46

I was told I can’t efile with two 8606 forms, both in my name. I have my own 8606 basis & this year inherited a Traditional IRA from which I took a RMD for 2021. Pub 590 says I can’t co-mingle the inherited basis with mine.  I have converted all my Trad IRA into ROTHs in 2021 so I will no longer have a basis after 2021.  The Trad accounts all had a zero balance for 12-31-21.   Does this mean I will have to mail in my return or is there software out there that will allow me to generate 2 forms 8606 in my name?  Should I just claim the inherited RMD in 2021 and start the inherited 8606 next year?  Problem is, then I wouldn’t have a zero balance on all my traditional accts  if I had to include my inherited one. Any suggestions would be appreciated!

Submitted by David Mertz on Tue, 2022-02-22 21:16

Your 2021 tax return needs no Form 8606 for calculating the taxable amount of a distribution from the inherited IRA because you made no such distribution in 2021.
If the inherited IRA has basis in nondeductible traditional IRA contributions, you’ll have to include a Form 8606 with your 2022 tax return to calculate the taxable amount of the beneficiary RMD that you’ll receive in 2022.  If your tax software doesn’t support e-filing this Form 8606, you’ll have to file by mail.
The year-end balance on the Form 8606 for distributions from the inherited IRA is only the amount that’s in the inherited IRA, not your own IRAs.  The year-end balance on a Form 8606 for distributions from your own IRAs includes only your own IRAs, not the inherited IRA.  Everything about the inherited IRA is independent of your own IRAs.
I’ve heard that TaxAct can handle the preparation of Form 8606 for an inherited IRA, but I have no personal experience with that to know if that’s true.  Even if TaxAct can prepare this form, I don’t know if the IRS can accept it via e-filing.

Submitted by Patricia Giroux on Wed, 2022-02-23 00:19

There was in fact a RMD taken in 2021 by me, the beneficiary under my SSN. Mom had not taken her 2021 RMD, so I did  once the inherited account was funded & received a 1099-R for the distribution. I believe that an 8606 would be required using her basis for her year of death RMD. Since I made Roth conversions during 2021 as well, I too have an 8606 with MY basis.   Thanks for taking the time to answer my question.

Submitted by David Mertz on Wed, 2022-02-23 00:35

But the completion of your mother’s RMD for 2021 was a distribution from the TSP, not from the inherited IRA, so even though it’s taxable to you it doesn’t go on any Form 8606.

Submitted by Patricia Giroux on Wed, 2022-03-02 19:41

Sorry to bother you again but I think I have confused things. I inherited a traditional IRA and a TSP, 2 separate accounts from my mom in 2021.  My last question relates to the RMD and 8606 form relating to the traditional IRA.  After an inherited trad IRA was opened, it was funded and I took mom’s 2021 RMD which she did not take before her death in 2021. This traditional RMD would go on the 8606 with her basis (divided by the 3 beneficiaries). I also have my own 8606 with my basis.  Since my basis and the inherited basis can’t be comingled, I will have 2 forms 8606.  I also inherited a TSP acct, which also had a RMD,reported as a pension distribution.  I understand, even though in 2021 the inherited TSP RMD does not get entered on the 8606 as a distribution, the balance must be reported in 2021 along with the traditional RMD from the other IRA. Now I have 2 forms 8606, both with my name and SSN# but 2 basis which Pub 590B says can’t be comingled. Is my only option to mail in my return if efile does not accept 2 forms 8606 from the same person?  I converted all my traditional IRAs this year to Roths, so I will not have an 8606 in 2022, with my basis. Can I report the traditional RMD as fully taxable (4a & 4b) and just omit the 8606 with her inherited basis this year?  I manually completed the 8606 & it reduces her taxable RMD by only $91, not enough for me to go out & purchase another software program.  Do I have any other options?  Thanks again if you are willing to answer this!

Submitted by David Mertz on Wed, 2022-03-02 21:04

I see.  Since the TSP was transferred to an inherited IRA in 2021, as far as I know, the year-end balance from the inherited IRA established by direct rollover from the TSP must also be included on the Form 8606 for calculating the taxable amount of distributions from either of the inherited traditional IRAs.
Note, however, that these two inherited IRAs cannot be aggregated for the purpose of taking RMDs because the inherited IRA established form the traditional IRA is subject to the RMD changes made by the SECURE Act while the inherited IRA established by direct rollover from the TSP is not (because for governmental plans the changes made by the SECURE Act only apply to governmental plans for decedents dying after 2021).  The inherited IRA established by rollover from the TSP is subject to the same RMD requirements as would have applied had the TSP not been rolled over.  I haven’t seen anything to suggest the fact that these inherited IRAs cannot be aggregated for the purpose of taking RMDs from each of these accounts would mean that they would have separate basis.

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