Inheritance and retirement plans

[Tax Sleuth]

How does an inheritance from a tax-qualified retirement plan usually work? My understanding is that distributions from tax-qualified plans (such as a traditional IRA or 401K) passed to a beneficiary are taxable as income to the beneficiary in the year they are taken. If there is a taxable gain to a beneficiary because of a distribution, how is this generally reported in terms of federal tax forms and/or tax documents?

[JoshinNC]

What type of plan?

IRA, Roth IRA, non-qualified annuity, 401k, 403b, pension?

Generally, the distribution is taxable in the same way that it would be taxed had the recipient been the owner of the account. Of course, the RMD rules and the "5 year rule" may affect when the distributions are required to be made.

[joanmcq]

The bene generally has the option to move an inherited account (401k, IRA) into a beneficiary IRA. The bene must take RMDs based on the bene's life expectancy. A bene IRA must be titled as such, cannot be comingled with any other IRAs the bene might have, and it must be a trustee-to-trustee transfer. Otherwise, the account must be liquidated within 5 years,

distributions are taxable as ordinary income, but no penalties. Should be coded 4.

[Burke]

How does an inheritance from a tax-qualified retirement plan usually work? My understanding is that distributions from tax-qualified plans (such as a traditional IRA or 401K) passed to a beneficiary are taxable as income to the beneficiary in the year they are taken. If there is a taxable gain to a beneficiary because of a distribution, how is this generally reported in terms of federal tax forms and/or tax documents?

The bene will receive Form 1099R which goes on Line 16 of the Form 1040. There is no "gain" calculated. The entire distribution is fully taxable.