Distributions from inherited IRAs are not to be included on your own Form 8606 and indicating that the distributions are from inherited IRAs will cause TurboTax to automatically exclude them from your Form 8606. If you made no distributions or Roth conversions from your own IRAs, Form 8606 line 4 should be blank.
The taxable amount of distributions from IRAs inherited from your parents must be calculated on a separate Form 8606 prepared outside of TurboTax and only the resulting taxable amount entered into TurboTax while preparing your tax return. These inherited IRAs must be treated entirely separately from your own.
Despite the incredibly bad wording that makes the nonsensical implication that you inherited from an investment firm rather than from an individual and which confuses many people, TurboTax Product Quality has declined to change it. The intent was to question identify the distribution about which the 'inherited' question is being asked, but fails miserably at conveying the intent of the question. It's not clear why TurboTax even asks the question for anything other than a distribution from a Roth IRA since, for distributions other than from a Roth IRA, the code in box 7 provides all of the necessary information (unless the coding provided by the payer is incorrect, in which case the issue is with the payer, not with TurboTax). TurboTax should be going by the code 4 when code 4 is present and not even asking if the distribution was from an inherited IRA. You must answer Yes when asked this question in response to entering the forms for these distributions, otherwise TurboTax will inappropriately include them on your Form 8606.
