Why does the TurboTax calculator adjust from a potential refund of over $2000 to us owing about $650 when I enter my IRA yearend balances?

Forum|Forum|7 years ago
June 1, 2019
9 replies
37 views

My wife turned 70 1/2 in 2017. She deferred her 2017 RMDs until 2018 before April 1st. This year, we included her RMDs for both years in our reported income, entered the basis of nondeductible contributions for her IRA accounts, and entered the yearend IRA balances where asked for. When entering the yearend balances, the calculator reduced the potential refund as discussed in the original question. Why. What happens in that calculation and why would yearend balances affect the refund if full RMDs were taken during the year?

TurboTax Deluxe Windows

dmertz

Level 15

Until you enter the year-end basis, TurboTax assumes a year-end value of zero when preparing your wife's Form 8606 Part I to calculate the taxable amount of her IRA distributions. Because the taxable amount of an IRA distribution and the amount of basis that remains in the traditional IRAs depends on the ratio of basis to overall balance plus distributions, using a value of zero on line 6 of Form 8606 results in an incorrect, low taxable amount being calculated. Once the year-end value is entered, TurboTax recalculates to obtain the correct, higher taxable amount of the distributions.

TurboTax's refund/balance due display is useless until your tax return is complete. Intermediate results are essentially meaningless.

toolman1995

Level 2

I have a traditional IRA. The value amount is $100,000. but in previous years I did not defer 4000. This year I entered the 4000. basis and it gave me a return of 1500. but when it ask me to enter my total IRA value as of 12-31-19 I entered 96000. It takes away some of my refund. Am I doing this right or should I enter 0 as I have no more basis to report in the future?

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dmertz

Level 15

toolman1995, have you taken any traditional IRA distributions since making the $4,000 nondeductible traditional IRA contribution?

Given what you have said, I'm guessing that you are are anticipating taking a $4,000 distribution from your traditional IRAs before the end of 2019. It's correct that TurboTax reduces the calculated refund when you enter your year end balance in traditional IRAs. You are not permitted to take a distribution of only the basis in nondeductible traditional IRA contributions; your distribution is a proportionate mix of basis and pre-tax money, with the nontaxable portion of a $4,000 distribution calculated on Form 8606 Part I as follows:

$4,000 * $4,000 / ($96,000 + $4,000) = $160

The remaining $3,840 of the distribution is taxable and $3,840 of you basis in nondeductible traditional IRA contributions remains in your traditional IRAs to be applied to future distributions. You can see that if you mistakenly omit the $96,000 year-end balance you get the incorrect result that 100% of the distribution is nontaxable.