Help with my 1041 and Schedule K-1

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mclvngr
Posts: 47
Joined: Sun May 08, 2011 9:57 am

Help with my 1041 and Schedule K-1

Post by mclvngr »

I recently discovered that I’ve been doing my taxes incorrectly the last couple of years! I hope someone can help me figure out how to fill out my 1041 and Schedule K-1. I would prefer to do this myself and save a few bucks!

My father died in 2008 and left his IRA to his trust with me as the sole beneficiary of the trust. There is approximately $2 million in the inherited IRA, with equal parts invested in the Vanguard Total Stock Market Index, Vanguard Total International Stock Market Index, and Vanguard Total Bond Market Index. This year’s RMD was about $60,000. I have an automatic service through Vanguard that deposits the RMD directly into my money market account.

I’ve been putting the RMD amount down on line 15b of my 1040 and paying taxes on it as ordinary income.

I understand that each year I need to file a 1041 for the trust. The trust consists only of the inherited IRA. I’m assuming that there is no trust income per se. I receive a 1099-R that shows a taxable amount (Box 2a) which is equal to the RMD.

Should I put down the total amount of the RMD on line 18 of the 1041 as an income distribution deduction? If so, then what do I put down in the Tax and Payments section of the 1041? It’s not strait forward!

I also understand that I need to then “send” myself a Schedule K-1 with the RMD amount on it somewhere. What line does that go on? I don’t know if it goes under income or as a deduction!
MarkNYC
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Joined: Mon May 05, 2008 7:58 pm

Re: Help with my 1041 and Schedule K-1

Post by MarkNYC »

When a trust is named as the IRA beneficiary, the RMDs get paid to the trust and are either accumulated or distributed to the trust beneficiary, depending on the terms of the trust. If the trust meets certain requirements, the age of the trust beneficiary can be used to calculate the RMD. On Form 1041, the trust would show the IRA income on line 8 and if distributed, the amount shows on line 18 as an income distribution deduction. The K-1 to the trust beneficiary would show ordinary income in the amount of the IRA distribution (assuming no trust expenses). The individual would then show the trust income on line 17 of his Form 1040. A trust is not required to file a tax return if it has no income.

In certain situations, a trust (or estate) can "assign" the IRA income interest to the beneficiary so that the trust can terminate rather than remain open for many years for the sole purpose of receiving and paying out IRA distributions.

So, who is the trustee, you or someone else? Has the trust been filing income tax returns every year since 2009 to show the IRA income? Or did the trustee assign the IRA income interest to you at some point? I would assume it was assigned to you otherwise Vanguard would not send you the IRA income if a trust was named as beneficiary. But if it was assigned to you I would assume you would know this, which it appears you don't, so it's a bit confusing.
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mclvngr
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Joined: Sun May 08, 2011 9:57 am

Re: Help with my 1041 and Schedule K-1

Post by mclvngr »

I'm the trustee and I'm the only beneficiary. I have not been filing tax returns for the trust. #1, there hasn't been any income outside of the IRA. #2, I thought that I could just put the RMD amount on my 1040 as an IRA distribution. If what you're saying is true, then I haven't had to file a 1041 since there hasn't been any income.
MarkNYC
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Joined: Mon May 05, 2008 7:58 pm

Re: Help with my 1041 and Schedule K-1

Post by MarkNYC »

If the trust is the sole IRA beneficiary, by what authority is Vanguard making IRA distributions to someone other than the trust? As trustee, perhaps you assigned the trust's interest in the IRA income to yourself as sole beneficiary of the trust?
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