Form 1099R & MRD

[Guest jim williams]

How is Form 1099R completed when a RMD is made payable to a trust on behalf of a nonspousal beneficiary? Is the Recipient the Trust or the Beneficiary? I'm assuming the Trust satisfied the designated beneficiary requirements. Is the distribution still taxable to the beneficiary?

[Mary Kay Foss]

The trust is the beneficiary and the 1099R should list the trust's name and ID #.

The trust agreement will determine whether the benefiicary is taxable or not. A conduit trust is one where the entire RMD is distributed each year. In that case the trust files a return and the beneficiary pays the tax.

If it's not a conduit trust, it's trickier. Trusts get to the highest federal tax bracket around $9,000 of income. If the RMD is principal to the trust, the trust pays the tax. If the agreement says to distribute income, it usually means trust income not taxable income. In California, an RMD is 10% income and 90% principal if the trust agreement doesn't provide otherwise. That means the beneficiary would pay tax on 10% of the RMD and the trust is taxable on the rest.

Trusts can be a good beneficiary in many cases, but people who designate them as beneficiaries don't always understand the income tax implications.