roth ira and 1041

[TAX4US]

There was no named beneficiary on the roth IRA that TP had for 10 years. Only estate listed as beneficiary. When preparing form 1041 should this ROTH income be counted as Tax Free? EXEC is doing a first and final 1041. The 1099 has it listed as taxable with a code of T. Thanks for the help

[Burke]

Code T is used when the financial institution does not know if the 5-yr holding period has been met. This could be because they haven't had it at least 5 years. Perhaps it was transferred from somewhere else?

[DonPriebe]

or they always use "T"

Code T is used when the financial institution does not know if the 5-yr holding period has been met. This could be because they haven't had it at least 5 years. Perhaps it was transferred from somewhere else?

There have been several discussions indicating that Fidelity always uses "T" instead of "Q" on Roth distributions as a matter of policy. Google it.

[Roland Slugg]

If the Roth IRA's owner died, the 1099-R form should have been coded Q regardless of his age or how long he had it. (See the instructions for form 1099-R.)

Codes on 1099-R forms are frequently wrong, but what difference does it make in this case? The distribution is not taxable.

Regarding the use of Code T, my guess is that all the big trustees, such as Vanguard, Fidelity, etc., have their computers programmed to always use Code T unless the Roth IRA has been with them for at least five years. In fact, they might not count the five years exactly right, but instead truncate the year of establishment, making the switch from Code T to Code Q in the sixth year. In fact, that's the whole purpose of Code T ... "We don't know if you meet the 5-year requirement. You decide." As long as the taxpayer (or his tax preparer) knows how long he's had a Roth IRA, that's all that matters.

[DaveO]

I'm seeing this from most mutual fund companies. Often the "Taxable amount not determined" box is checked as well. When people start moving their accounts maybe the offending companies will take notice.