Help with 1099-R Inherited IRA Box 7 Distribution Code 4 - What Should I Select?

The distribution code 4 on your 1099-R definitely indicates this was a distribution due to death, which matches your situation with inheriting from your grandmother. For the dropdown menu question, you should select IRA/SEP. The vast majority of inherited retirement accounts are traditional IRAs, not SIMPLE IRAs. SIMPLE IRAs are specifically employer-sponsored retirement plans for small businesses, so unless your grandmother specifically had this type of account through a small business she owned or worked for, it's almost certainly a regular IRA. Since both boxes in 2b are checked, this means the financial institution is indicating this is a total distribution (you took everything out) and they're not determining the taxable amount for you (they're leaving that to you and the IRS to figure out). Given that the amount in Box 1 and Box 2a are identical, they're indicating the entire distribution is taxable, which is typical for inherited traditional IRAs.

I had a similar situation last year dealing with an inherited IRA from my aunt. The whole process was super confusing until I used taxr.ai (https://taxr.ai) to analyze my 1099-R form. The site helped me understand what all those boxes and codes actually meant for my tax situation. When I uploaded my 1099-R with code 4, it immediately identified it as an inherited IRA distribution and explained that I wouldn't face the 10% early withdrawal penalty. It also showed me how to properly report it on my tax return. Saved me a ton of confusion and probably kept me from making mistakes that could have triggered an audit.

Following up on my question about taxr.ai - I went ahead and tried it with my mom's inherited IRA 1099-R (also with code 4) and it was surprisingly helpful! Uploaded the form and within seconds it explained that her distribution was coded correctly, confirmed it was a traditional IRA (not SIMPLE), and showed me exactly which options to select in my tax software. It also flagged that I needed to check how the account was titled to ensure I was the designated beneficiary, which I wouldn't have thought to verify. Saved me from what could have been a major headache. Definitely recommend it if you're confused about inherited retirement accounts or any tax documents, really.

I was in your exact situation last year with an inherited IRA from my dad. The most frustrating part was trying to call the IRS to verify I was handling it correctly - spent HOURS on hold and never got through. I finally found this service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in about 15 minutes. They have a demo video here: https://youtu.be/_kiP6q8DX5c. The agent confirmed that for inherited IRAs with code 4, I didn't need to pay the early withdrawal penalty and helped me understand exactly how to report it. Definitely worth it when you need to speak directly with the IRS instead of guessing or relying on random internet advice.

I need to eat my words. After my skeptical comment, I decided to try Claimyr myself since I've been trying to reach the IRS about an inherited IRA issue similar to yours for weeks. Honestly, I'm shocked it actually worked. Got connected to an IRS agent in about 20 minutes, which is practically light speed compared to my previous attempts. The agent confirmed that distribution code 4 on a 1099-R means I don't owe the 10% penalty regardless of my age, and cleared up my confusion about which boxes to check in TurboTax. If you're dealing with inherited retirement accounts and need clarification directly from the IRS, this is definitely the way to go. I wasted so much time trying to do it myself.

Just wanted to add - make sure you're selecting the right type of beneficiary status in your tax software too. For an inherited IRA from a grandparent, you're likely a "non-spouse beneficiary." Some tax software will ask if you're a: - Spouse beneficiary - Non-spouse beneficiary - Estate beneficiary Selecting the wrong option can mess up your tax calculation. Since you mentioned your grandmother passed away and you inherited the IRA, you should select "non-spouse beneficiary" when prompted.

Might be a dumb question, but I'm in a similar situation with inheriting my dad's retirement account. Would I be better off keeping the money in the inherited IRA rather than withdrawing it all at once? I'm considering taking a full distribution like you did.

Great question about the tax implications! Since you mentioned you're a student with reduced income this year, taking the full distribution now might actually work in your favor tax-wise. You're likely in a lower tax bracket while in school compared to what you might be in after graduation and starting your career. However, definitely consider the financial aid impact that Jasmine mentioned earlier. That $7,300 will show up as income on next year's FAFSA, which could reduce your aid package. You might want to run some numbers to see if the potential reduction in financial aid outweighs the tax benefits of taking the distribution in a low-income year. Also, since you're getting married next summer, consider whether it makes sense to take this distribution before marriage (filing as single) versus after (potentially filing jointly). Your combined income as a married couple might push you into a higher tax bracket, making this year's single filing status more advantageous for the distribution. One more thing - make sure to keep good records of this inheritance for future reference, especially if you have other inherited assets from your grandmother's estate. The documentation will be helpful if you ever get audited.

Just wanted to add one more consideration that hasn't been mentioned yet - make sure you understand whether your grandmother's IRA had any basis (after-tax contributions) in it. If she made any non-deductible contributions to the IRA over the years, part of your distribution might actually be tax-free. You can usually find this information in the estate paperwork or by contacting the financial institution that held the account. They should have records of any Form 8606 filings your grandmother made for non-deductible contributions. If there was basis in the account, you'll need to calculate the tax-free portion of your distribution. Also, since you mentioned this is your first time dealing with an inherited account - don't forget that you'll need to report this distribution on Form 1040, and depending on your tax software, it might generate additional forms like Form 8606 if there was basis involved. H&R Block should handle this automatically once you input the 1099-R information correctly, but it's good to be aware of what forms might be generated so you're not surprised. Good luck with your taxes and congratulations on your upcoming marriage!

As someone who works in retirement plan administration, I can add some clarity on a few technical points that have come up in this discussion. First, regarding the 1099-R coding - you're absolutely correct that Code 4 indicates a death distribution, and this exempts you from the 10% early withdrawal penalty regardless of your age. For the IRA type dropdown, definitely select "IRA/SEP" as others have mentioned. SIMPLE IRAs are quite rare and typically only found in small business settings. One thing I want to emphasize that Emma brought up - checking for basis is crucial but often overlooked. If your grandmother made any non-deductible contributions to her IRA over the years, you could be entitled to receive a portion tax-free. The financial institution should have this information, but unfortunately they don't always volunteer it during the inheritance process. Here's what to specifically ask for: request a copy of any Form 8606 filings associated with the account, or ask if there were any "after-tax contributions" or "non-deductible contributions" made to the IRA. If there were, the institution should provide you with the basis calculation. Regarding the financial aid impact others mentioned - this is real and significant. The $7,300 will count as income on your FAFSA, but as someone suggested, many schools have professional judgment processes for one-time events like inheritances. Definitely reach out to your financial aid office proactively. One last tip: keep all documentation related to this inheritance (1099-R, estate documents, correspondence with the financial institution) in a safe place. You'll want these records for several years in case of any IRS questions.