1099 R Code T and Inherited Roth IRA: A Guide for Beneficiaries

Receiving a 1099-R code T for an inherited Roth IRA can be a complex and confusing process, but don't worry, you're not alone.

As a beneficiary, you'll need to understand the tax implications and reporting requirements for the inherited account.

If you're the beneficiary of a Roth IRA, you'll typically receive a 1099-R form from the custodian or administrator of the account, listing the distribution amount and code T.

This code indicates that the distribution is a non-taxable inheritance, meaning you won't have to pay taxes on the amount received.

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Inheriting a Roth IRA can be a complex process, but understanding the tax implications can make a big difference.

If you're inheriting a Roth IRA, you'll need to report the distribution on a Form 1099-R, but it's possible that the form may need to be corrected.

A Roth IRA owner who dies and leaves the funds to a beneficiary, such as a nephew, will receive a Form 1099-R showing a distribution code of 4, Death distribution, in box 7, Distribution code. However, this code is incorrect for a distribution from an inherited Roth IRA.

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A corrected Form 1099-R should be completed, leaving box 2a, Taxable amount, blank, and using code Q, Qualified distribution from a Roth IRA, or code T, Roth distribution exception applies, in box 7, Distribution code.

The five-year holding period is a key factor in determining which code to use, and it's essential to understand the rules surrounding this period to ensure accurate reporting.

If the five-year holding period was met with the financial institution, code Q should be used, but if it was not met, code T is the correct choice.

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A corrected IRS Form 1099-R is sometimes needed, but often the original form is correct and the customer is just unfamiliar with how certain transactions must be reported.

To determine if a corrected Form 1099-R is needed, you need to understand how the financial institution reported the distribution. For example, if a Roth IRA owner died and left the funds to a beneficiary, the Form 1099-R should show code Q in box 7, Distribution code, not code 4.

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Code 4 is used for a distribution to a beneficiary of a Traditional, SEP, or SIMPLE IRA, which doesn't apply in this case. A financial institution should use code Q if the five-year holding period was met, or code T if it wasn't.

Making a 60-day rollover contribution of an IRA distribution doesn't "undo" the Form 1099-R reporting of the distribution. The financial institution should still report the distribution, even if it was rolled over.

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