Question

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?

Answer

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
  • Bonuses
  • Benefit plan distributions
  • Partnership income
  • Interest and dividends
  • Gain on sale of property
  • Crops and livestock
  • Installment obligations
  • Royalties

 

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