Question from a reader:”I inherited an IRA account from a distant relative who had already reached retirement age. I took my mandatory disbursement last year, but I normally fill out a 1040EZ form for my wife and I, and need to know if there is a separate form I need to attach, or if I need to file a completely different form in order to file for my taxes this time around. I did have my IRA company take out the taxes at the time of disbursement, I’m just not sure how to file now that I have this extra ‘income’. Thanks!”
My answer is that it may be a little more complicated than a 1040EZ. It could be a 1040A or 1040. The general rules for inherited IRAs are in the good news, bad news categories.
The good news is that you will generally not owe any taxes on it until you start collecting on it. The bad news is that if you are collecting on it (as you are) you will owe taxes. Good and sound thinking on your part to have taxes taken out by whoever is managing your IRA!
Did you get a 1099R? If so, that should have the information you need on it for filing and if you didn’t get one, check with the IRA company and see if they have a letter or something that equates to their version of a 1099R. They do need to report that money was coming or going.
I would refer you to check out Publication 590, Individual Retirement arrangements, from the irs website. You can download the .pdf file there. I would suggest that you review and start on page 20, and skip over the tables (unless they apply to your situation). You didn’t state if there was anything else from the estate involved, if so, you may need to look at Publication 559, Survivors, Executors, etc.
I would suggest reading the other worksheets in the publication and if need be, follow through to some of the other suggested reading. The publication should point you in the direction you need to go to show the income.
Generally speaking, IRA income goes on lines 15a and b of the 1040 and the Other Taxes and Other Payments section on page 2 of the 1040 is where you would have the other taxes (if any apply) and where the payment that was withheld would go. If you are using a software package, that information should flow through fairly easily.
On a 1040A the income would be on lines 11a and 11b.
As for which one form to use, without knowing anything else about your financial situation (which is out of scope a bit and would require me to become preparer of record and have to charge you money at that point) you need to determine if there was anything else that added to the complexity of your return that would warrant going beyond a 1040A. Read the publication(s) and that should give you a clearer direction of which way to go.
Hope that helps and good luck with the filing.
May 07 2009 Early AM
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Inherited IRA Question
Tags: Business, inherited IRA, taxes