How should I report a 1099-R from an inherited Roth IRA?

This is actually a standard reporting procedure, so no need to worry! When assets move between accounts - even Roth IRAs - the financial institution is required to issue a 1099-R to report the distribution to the IRS, even if it's not taxable income to you. For an inherited Roth IRA, you'll need to report the distribution on your tax return, but it should be tax-free as long as the original Roth IRA meets what's called the "5-year rule" (meaning the original owner had the Roth for at least 5 years before passing). When you complete your tax return, you'll report the full amount from the 1099-R, but then you'll also indicate that it's not taxable income. The distribution code in Box 7 of your 1099-R should help clarify this. Look for code "Q" which indicates a qualified distribution from a Roth IRA, or code "T" for an inherited Roth. These codes tell the IRS that this money shouldn't be taxed.

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Just an important note for inherited Roth IRAs - the rules changed significantly with the SECURE Act in 2020. If you inherited after 2019, you generally need to withdraw all the money within 10 years (with some exceptions for spouses and certain other beneficiaries). Look carefully at the year your spouse passed away, as this affects which rules apply. The bank may issue a 1099-R each year you take distributions, and you'll need to report each one, even though they're typically not taxable.

Something else to consider: even though Roth distributions are generally tax-free, make sure you keep good records of this transaction. The IRS can get confused with inherited accounts and you might get an automated letter questioning why you didn't report the income.

If the original Roth owner had the account less than 5 years before passing away, things get more complicated. The earnings portion could be taxable while the contributions remain tax-free. Did your 1099-R break down how much was contributions vs earnings?

This is a really comprehensive discussion already! One additional point to consider - if you're working with a tax professional this year, make sure to bring both the 1099-R and any documentation from the bank showing the direct transfer to the inherited Roth IRA account. Even though this should be straightforward (especially with distribution code "Q"), having that paper trail can be invaluable if the IRS ever questions the transaction later. The bank statement or transfer confirmation showing the money went directly from one Roth account to another without touching your personal accounts helps establish that this was a proper trustee-to-trustee transfer. Also, since you mentioned this is your first time dealing with inherited retirement accounts, you might want to ask the bank if they have any educational materials about inherited Roth IRA rules. Many financial institutions have gotten much better about explaining the SECURE Act changes and what they mean for beneficiaries.