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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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In 2010 my Uncle died and named me as a beneficiary on his

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In 2010 my Uncle died and named me as a beneficiary on his Roth account in the amount of $13,640.94. My income as a self employed window washer was $2,035. I paid the self employment tax of $250. The IRS sent me a letter saying that I owe them the tax on the Roth distribution and to file a form 8606. Should I do this or request to amend my 2011 tax form?
Submitted: 1 year ago.
Category: Tax
Expert:  jgordosea replied 1 year ago.

Greetings,

 

When you are already corresponding with the IRS it is not good to file an amended return as that is sent to another place in the IRS.

 

The best way to reply is directly to the address on the notice or letter from the IRS.

 

Sending Form 8606 will likely end any inquiry.

See http://www.irs.gov/pub/irs-prior/f8606--2011.pdf

Part III is the section for Roth IRA distributions.

Note that line 19 is for nonqualifed distributions.

 

Although in most cases a beneficiary can withdraw the contributions and all earnings from a Roth IRA without tax due (whether or not the beneficiary is age 59 1/2) the Roth account must have been in place for five years in order for the distributions to all be qualified as not subject to income tax.

For more explanation see http://fairmark.com/rothira/inherit.htm

 

If your uncle had the Roth account for less than five years prior to the distribution then the earnings (and only the earnings) would be nonqualified distributions reported on line 19 of the Form 8606.

 

So, you may have had to include the earnings in your income but the additional 10% penalty should not apply since this was a distribution due to death. (Form 5329 is used to report the reason that the penalty would not apply)

 

If you do not have the records, you will have to go back ask the company from which you got the Roth IRA distribution (or perhaps to the executor or representative that handled your uncle's estate) to determine that the Roth account was started less than five years before you took money out and also how much of the amount that you got was earnings that would have to be added to your income in the year you got the distribution.

 

Please ask if you need clarification.

Thank you.

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3012
Experience: I've prepared all types of taxes since 1987.
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