Roth Code "t" Beneficiary

[BOB W]

Client rec'd a distribution from deceased father with a code "T". My program wants to tax all of it..??? In researching Code T all it tells me is that it may be less than 5 years in existence..? I don't know at this time if that is true but will find out maybe monday. But that is not my problem.

Even if it was less than 5 years some of this should be a return of non-deductible contributions. Am I looking at this correctly????? "Taxable portion not determined" box is checked. So I guess the taxable portion can be adjusted when I get more details..??

[sea-tax]

Bob sorry I am shooting from the hip here but I would at least think that the bene would get the basis in the Roth as a deduction from taxable portion. You may need to investigate the Father's basis in the Roth.

[BOB W]

I marked the taxable portion as "0" but it is still showing all on page 1 1040. Then I put the full amount as basis, but my program is showing it all as taxable. ?????????

[Jesse]

Bob, what program are you using? Maybe something is not entered correct?

[BOB W]

Ultra tax > After I feel comfortable that I know all that I need to know I will call them.


I found this response to an identical question in google:

IRS does make mistake and this may be one of them.

The statements that beneficiaries receive Roth IRA tax-free in case of death could be a little misleading. First, the estate tax applies to assets in a Roth IRA the same way it applies to assets in a regular IRA. Second, if you the death occurred in less than five years after setting up a Roth IRA, beneficiaries may have to pay tax on earnings if they withdraw them too soon.

The income tax treatment of a Roth IRA following death is the same as before death, with three exceptions:

The 10% early distribution penalty generally does not apply to post-death distributions.

Beneficiaries can withdraw earnings tax-free, even if the beneficiary is under 59½ and the decedent was under 59½ - but only if the five-year requirement is satisfied.

Beneficiaries may be required to take distributions according to set of rules.

You may receive a notice from IRS. You should reply to IRS with statement that this was inherited Roth IRA and that it was set at up least 5 years before the distribution was taken.

You may follow up with IRS by calling a couple weeks later at 1-800-829-1040 to clarify the issue.




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[Kram BergGold]

Page 13-15 in TTB

See page 13-15 bottom left column in TTB. It says distributions are taxable in your scenario. Of course only the income would be taxable not the amounts contributed.
There is no mention as to the 10% penalty but I would assume it would apply here as well.

[JG EA]

Is this one of the circumstances you should put on Form 8606 to show basis? Usually the software has a box on screen 1099R to check to show it is on 8606. Then it doesn't create the tax there.

And then enter info on 5329 if it applies. But doesn't Code T mean it doesn't apply?

[BOB W]

Thanks for all your replies it was a great help.

I called UT and as it turns out the program does not pickup basis on the 1099 input screen (they have the "basis" box showing) and they have another area where basis goes. No link or anything for guidance...?? Not cool at all.

When I put in basis in their "special area" it took care of the problem. Now I just have to review where this figure went to and move on if all looks OK.

Thanks again Jesse, Seatax, JG EA and Kram for your help.