Yes, you have confirmed my understanding- and the turbotax help desk agrees - the software does NOT handle this situation. We had to find a workaround- for those finding themselves in the same situation - here's what to do:
(This is for NJ taxpayers who have been taking a distribution from an inherited IRA but now are ALSO taking a distribution from their own traditional IRA - either as a conversion to a Roth, or as an RMD. - Actually, it also is for those who previously took a distribution from a traditional - non-inherited IRA and are now also taking a distribution from an inherited traditional IRA)
Scenario one: For those who in previous tax years have been reducing the NJ taxes on a distribution of a traditional IRA (inherited or otherwise) by using the exempt basis in turbotax and the pensions/iras etc worksheet (NJ worksheet C in the instructions for NJ1040) but are in this tax year also doing a distribution from a different traditional IRA. That is, a distribution from both an inherited and a non-inherited traditional IRA.
1. When you go to the forms for the NJ return, you will see that Turbotax has already populated the worksheet to reflect the basis in the IRA for which you previously took a distribution. It does the calculation in Part B and enters the "correct" new basis in Part A, 4b (Unrecovered contributions). The worksheet (and the NJ Worksheet) only let you choose between treating the distribution(s) as the first year or 2nd or later year. you cannot enter both, even if this is essentially a new calculation reflecting the basis in the IRA for which you have not previously calculated a basis.
2. Take the basis reflected in Part A 4b and add it to the basis of the distribution from the "new" IRA. Enter this total as a first year basis in Part A, 4a.
3. delete all the data form Part B, so that the entry in Part A 4b is blank or reads "0". The software won't like this, but I think it will work (I'll try filing today!)
Scenario two: For those taking a distribution from both an inherited and non-inherited traditional IRA and have not previously exempted any portion of the previously taxed contributions:
Easy!! Just combine the bases of the two IRAs creating a single value to be entered at Part A 4a! Next year this will carry forward, should you choose to exempt a portion of any future distributions.
BTW: Don't worry if you've previously taken distributions but did not calculate a basis. That basis is good forever - you will just take a small piece of it each time you use the worksheet! No need to go back and amend returns!!
Hope this helps. I know I'm not the only one with this situation.
