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Level 5
December 3, 2021

Form 1041 K-1

  • December 3, 2021
  • 1 reply
  • 7 views

Hello Community. I have a client who is the beneficiary of an estate of her deceased Aunt. The assets in the estate are "qualified money" Traditional and Roth IRA. Since the estate was named beneficiary instead of the individual beneficiary is there a place on the K-1 that allows for non taxable income such as the  ROTH IRA and allowing the Traditional IRA to be non taxable as well put into the name of the beneficiary and taken into income over the allowed 5 year period?  This was an estate planning error as the decedent died before the beneficiaries were corrected as qualified money should never name an Estate as the beneficiary. Can anyone provide any suggestion as my client as beneficiary would have to take the entire K-1 distribution as income if there is not a place on the 1041 or K-1 to identify the taxable and non-taxable portion of the distributions. I am not the preparer of the Estate's return but this is what they are telling my client that it will all be taxable which does not make sense to me knowing the nature of the assets. 

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    1 reply

    sjrcpa
    Level 15
    December 3, 2021

    IRA money retains its character in the estate. The ROTH IRA distribution is not taxable on the 1041. That accountant is wrong.

    The regular IRA is taxable to the estate. How much is it? The estate could possibly request a letter ruling to treat it as going to the beneficiary instead of the estate. Quite expensive.

    The more I know the more I don’t know.
    AnmarieAAuthor
    Level 5
    December 9, 2021

    Thanks for your response. Where on the  Form 1041/K-1 can you designate Non-taxable distributions to the beneficiaries? Since I only have prepared one 1041 before I would like to confirm with the tax preparer the line items on the form so not to show the Roth IRA as a taxable distribution. 

    As far as getting a letter ruling, I am not familiar with this as does it relate to the beneficiaries probating the estate? If you can clarify for me. I would just like the Estate to handle this correctly but I am not involved with this but only handling the return of the "beneficiary". The traditional IRA is valued at roughly $1Mil of which my client is a 50% beneficiary of the estate.

    Your assistance is greatly appreciated. 

    Anmarie

     

    abctax55
    Level 15
    December 9, 2021

    Link to IRS info on requesting a PLR (Private Letter Ruling):

    https://www.irs.gov/irb/2021-01_IRB

    As you can tell just from length of the article, it is an involved process.  And the submission fee is high (it varies...) Plus the cost of a tax pro to work up the submission.

     

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