Anyone who inherits an IRA will have IRD (Income in respect of a decedent) ... all that means is
THat when the beneficiary takes moey out of the IRA (and there are some rules arouns that) they will pay income tax
It depends on the type of trust
in the funds were distributed into a trust. is the the taxable the trust, and through a k-1 for their prorate ownership the individuals are taxed?
If the trust is irrevocable (a separate taxable entity) .. it will pay the income taxes any time money is distributed
how is this reported
If the trust is what's called a grantor trust (where the taxatin is simply pased through to the grantor of the trust) ... from a tax perspective, it's as though the trust isn't there
the grantor pays the income tax
for the iorrevocable trust it will beon the trust's tax return Form 1041
FOr the individual, 1040
does the distribution get report on form 1041 ? and pay taxes at the trust rate?
That's correct (For the irrevocable trust)
A trust is a popular designation because it generally gives the IRA owner some degree of control over how the assets are distributed after he or she is deceased. However, while a trust is an effective estate-planning tool for many, an IRA owner must take some steps to ensure that the outcome is consistent with his or her needs.
yes it is a irrevocable trust. What line would this go on on form 1041
Just a sec
Enter other items of income not included on lines 1, 2a, and 3 through 7. List the type and amount on an attached schedule if the estate or trust has more than one item.
Items to be reported on line 8 include:
Unpaid compensation received by the decedent's estate that is IRD, and
Any part of a total distribution shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., that is treated as ordinary income. For more information, see Form 4972, Tax on Lump-Sum Distributions, and its instructions.
so it would be reported on form 4972
NO, this is for Plan participants taking lump sum distributions, not for IRD
IF an individual were the beneficiary, it would be the same "Other Income"
but on the 1040
the trust is the beneficiary, the funds were distributed to the trust so form 4972?
No, as I said form 4972 is for LIVING plan participants taking lump sum distributions
ok, so were does this get reported?
beneficiaries of ORAs and qualified retirement plans (whether trust or individual) report as other income
line 8 on the 1041
again; (FROM IRS)
See this: http://www.irs.gov/instructions/i1041/ch02.html#d0e3182
specifically, Unpaid compensation received by the decedent's estate that is IRD
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