I have a question about 1099-R distribution codes. I inherited part of my father's retirement account and received a Form 1099-R. Do I have to report this as income?
You’ll report amounts from Form 1099-R as income. This is because it’s income in respect of a decedent.
Income in respect of a decedent is earned by a deceased person before death. However, it wasn’t paid to the person until after death. So, the income is taxable to the recipient in the year received.
Regarding 1099-R distribution codes, retirement account distributions on Form 1099-R, Box 7, Code 4 are still taxable based on the amounts in Box 2a. These show payment due to death of the account owner. However, the 10% penalty on early distributions isn’t applied as an exception for Code 4 distributions. Include the federal withholding amount reported in Box 4 as an additional withholding.
Types of income in respect of a decedent include:
- Retirement accounts
- Employee compensation
- Benefit plan distributions
- Partnership income
- Interest and dividends
- Gain on sale of property
- Crops and livestock
- Installment obligations
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