1099R for deceased

[Possi]

Well, this is a first for me.

Husband takes out a loan on his 401K. (a little over $20k)

It funds on the very day he died, 12-12-2012.

His widow files MFJ for 2012. No issues.

No dependents, so in 2013 she files SINGLE.

The loan didn't get paid back, so they issue the deceased husband a 1099R for 2013. It is under his SS#. There is no estate. No fiduciary tax ID number. Every little thing they owned, which isn't much, was in both names.

Should she have the issuer correct the 1099R to her SS#?

[Koss]

Form 1099-R

If they will agree to re-issue it, that would be great, but be careful. The distribution code should be 4.

The only other way I can think of to handle it would be to obtain an EIN for the estate, and file a Form 1041 to report the income.

Income tax rates for estates are higher than the rates for individuals, so it may be appropriate to let the income pass through from the estate to his wife, so that it gets reported, and taxed, on her 1040, instead of getting taxed at the entity level (on the 1041).

Were there other funds in the 401(k) that passed directly to her upon his death? Was she named as the beneficiary of his 401(k) account?

If so, that provides a solid basis for requesting that they re-issue the 1099-R, to avoid having to file a 1041.

BMK

[Possi]

beneficiary question

I will ask if she was the beneficiary. I believe so. There was another 1099R in his name for 2013, but it was a rollover to her account, and it was coded G, so I wasn't concerned with it.

At this point, should I file an extension with the assumption that it is all taxable with a code 4 or a code 1?

[Koss]

Form 1099-R

At this point, should I file an extension with the assumption that it is all taxable with a code 4 or a code 1?

Sounds like a reasonable approach to me. But it shouldn't be code 1, unless they want to backdate the distribution to 2012, and then you can do an amended return for 2012. But even that's kinda shaky. I don't think they can make a distribution to someone who is dead. The distribution should go to the beneficiary. And even though the loan funded on the day he died, the decision by the plan administrator to treat the loan as a distribution must have occurred after he died.

The difference, of course, is that code 4 is not subject to the 10% penalty.

But if they won't reissue it, and you do a 1041, that will also avoid the 10% penalty--even if you pass the income through to the beneficiary of the estate.

I just don't think they should issue it to her with a code 1. If they issue it to a beneficiary, it has to be code 4.

BMK

[Possi]

Brilliant

Thank you for the detailed response! It makes perfect sense, but I would never have put it together. I appreciate you help!!