I have been using Turbotax for 10 years. I thought Form 8606 was supposed to track your total basis in traditional IRAs by adding to line 2 each year. Why doesn't Turbotax include the previous years contributions?
TurboTax does. However, it's all too easy to cause TurboTax to silently discard the transferred-in basis information by inadvertently answering No when asked if you made any nondeductible traditional IRA contributions. Once discarded, the historical information is gone. The only way to recover the information is to either manually reenter the amount or to start the tax return over and transfer in the historical information again.
@ldnelsonhas1 - The 8606 form is automatic if you need it.
You don't normally enter a 8606 itself. It is automatically created when:
1) You make a new non-deductible Traditional IRA contribution.
2) You take a distribution from a IRA that has a after-tax "basis".
3) You make a conversion of a retirement account to a Roth IRA
If none of those occurred, then the last filed 8606 remains in effect
There are some circumstances when a 8606 must be files for other reasons and might require filing a stand-alone 8606.
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/1899503-what-is-form-8606-nondeductible-iras-used-for">https://ttlc.intuit.com/questions/1899503-what-is-form-8606-nondeductible-iras-used-for</a>
TurboTax does. However, it's all too easy to cause TurboTax to silently discard the transferred-in basis information by inadvertently answering No when asked if you made any nondeductible traditional IRA contributions. Once discarded, the historical information is gone. The only way to recover the information is to either manually reenter the amount or to start the tax return over and transfer in the historical information again.
The only years you need to have a 8606 in the return is when you add non deductible contributions or you take distributions. Keep a copy of the most current 8606 in with your IRS paperwork so you have that info when you take out distributions later.
Good point. TurboTax carries the historical information on the IRA Information Worksheet and uses the current basis total from that worksheet to populate line 2 of the current-year's Form 8606 *if Form 8606 Part I is needed* to report new nondeductible contributions not rolled over or you have made distributions or conversions from your traditional IRAs.
I'm curious why TurboTax would ask you if you still have non deductible IRA contributions from previous years. If you have a IRA distribution they become part of the tax calculation. If you don't have a distribution you still have a basis in your IRA which can be used in future years for future IRA distributions. Non Deductible don't expire. The correct way to handle these would be similar to Long Term Capital Loss Carry Forwards. TurboTax doesn't ask you if you still have LTCL Carry Forwards. It carries them forward and uses them when applicable. By allowing you to inadvertently discard non deductible IRA contributions TurboTax costs you money since you will pay taxes on these distributions which should be tax free. TurboTax should correct this deficiency in their software.
I agree. It's a complaint that in the past I've made to the moderators to pass on to the product quality folks. However, I don't think Intuit chose to consider this to be TurboTax behavior that needs modifying. My suggestion to them was to at least add a confirmation page when TurboTax is about to delete the basis.
ALWAYS print the latest copy of the form 8606 and the contribution worksheets and keep them with your IRA papers for quick reference in the future. NEVER rely on a program to keep this important info for you.
clsale1999 identified the problem precisely as I described it today, Turbo Tax expert was totally unaware that it existed. I filled out the Form 8606 in 2008 and every year since the taxable amount was calculated by the App. wasted 2 hours and I have to go thru 8 years of tax returns to figure my basis.
I just ran into the same problem described above. TurboTax's handling of Traditional IRA Basis needs to be fixed. I just discovered that they dropped the 8606 from several years even though they created the worksheet.
This year I found an interview to enter explanations for the Basis discrepancy, but then they merged both my and my spouse's explanations into one combined basis that adds both out numbers together, even though spouses' IRA Bases should never be combined. And it then gets included this combined mess in the Tax return as a "Blank Form".
@schoenba - You cannot combine basis. You only need a new 8606 if there is new non-deducible contribution or a distribution, otherwise the last filed 8606 remains in effect. You would only get a "combined" basis if you failed to select the spouse that the Contribution or distribution was for. TurboTax used the spouse check box to produce either a 8606-T (Taxpayer or first person listed on the tax return), or 8606-S (Spouse or the second taxpayer listed on the tax return).
Thank you macuser_22 -- I know you cannot combine basis and they should never be combined, but that is exactly what TurboTax did so it's clearly a bug. I was trying to correct my basis which was zero since TurboTax had dropped reporting the Form 8606s the last few years. I was using TurboTax's interview for non-deductible Traditional IRAs where it displays the Basis it has from the prior year's and asks you to revise it. If you do, it then asks you to provide an explanation in a line-by-line format with associated numbers. I did this and checked the Forms and I now had a new "Blank Form" with my entires. Then I did my Spouse's corrections and was surprised when the explanation entry form already had my entries in it. When I added a new entry for her it got added to the total. Note - that I did not have a 2017 contribution while she did, so she will have a form 8086 but I won't. I would be happy to repeat this error with someone from TurboTax if I could figure out how to reach them (email or phone).
If you can give me the step-by-step procedure that creates the problem I can report it. I don't know what you mean by a "blank" form. If yiu are only entering the basis and do not actually have a non-deductible contribution then it should only store the historical basis in the IRA Info Worksheet - no 8606 should be created.
TurboTax uses its Blank Form to provide a form on which to prepare your explanation for adjustment to basis. TurboTax only supports a single Blank Form, so you'll simply to enter each explanation in a separate paragraph on this form. Do *not* put dollar amounts in the Amount column. To avoid any meaningless summing of the amounts, report any dollar amounts in your explanation text.
Thank you. That is what I have done. I guess I will have to submit revised 8606's for the years 2013-2016 that Turbotax dropped. Is there anyway to do those electronically, or do I have to use paper?
One comment -- the interview for Nondeductible Contributions says "Let us know if [name] made and kept track of any nondeductible contributions to [name] traditional IRA from 2016 or prior years. (this is not common). It then says "Most people do not make or track any nondeductible contributions to their IRAs."
While I would agree that most people do not MAKE nondeductible contributions to prior year IRAs, I strongly disagree that most people do not TRACK nondeductible contributions. If this is how I lost the prior year reporting then this really needs to be fixed and the language changed.
The late/revised Forms 8606 will have to be filed by mail.
If an individual never made nondeductible traditional IRA contributions or rolled after-tax basis from an employer plan to an IRA, the individual has no traditional IRA basis to track. However, I agree that having nondeductible traditional IRA contributions should not be considered "uncommon" given the plethora of questions that appear on this forum regarding IRA basis, particularly now that so many people are making nondeductible traditional IRA contributions and are making subsequent Roth conversions to get around regular Roth IRA contribution limits because of high modified AGI.
About 30 plus years ago the same individual for H&R Block Executive Service did my taxes and suggested I buy IRA’s for my wife and I to lower our tax rate which I did every year. He would send an appointment card reminder and suggested I could buy for the previous year and the present year which I did; when he looked at my wife’s W2 he informed me she was in a retirement program, a 401K, which we had discussed before, and had told her not to do , therefore I could not deduct them.
I started using TurboTax 20 plus years ago and 10 years ago when turning 70 ½ and required to make a minimum withdrawal, I established the basis for the non-deductible portion of my accumulated IRA’s and each year the program would retrieve the previous year’s Form 8606 data and the only thing I had to do was insert the 1099-R withdrawal amount and it would calculate a percentage of my non-deductible basis that was non-taxable . The bank would always send me my statement balance of Dec 31 of the taxable year and previous year which I never used.
This year changed from the previous 10 years, it asked me for the 2016 Dec 31 Basis which I believed they were asking for the remainder of the unused portion of the non-deductible IRA’s, when I used the balance of the 2016 and 2017 it was so “out of whack” from the previous years I thought there was something wrong with the program.
I had bought my TT CD program at an office supply store. the 4th TT agent had me delete my previously installed program and she downloaded a duplicate program, which claimed to be 100% accurate; the taxable portion was 10% of the non-taxable. I submitted it and 2 weeks later received a direct deposit in my checking account. At the rate TT had been calculating it previously I would have died before using all the non-deductible portion.
Had TT explained the changes it would have been helpful but left them possibly liable for the previous method.
I stumbled across this a few years ago.... and had to re-establish the BASIS for tracking.
We took a very early retirement, and have not made IRA contributions for a couple of years.
Now - Nov 2018 - I'm thinking about doing a Roth Conversion - and again - have to wade thru the non-existent IRA tracking to find the last good BASIS numbers. I would really like to have TT carry forward any and all IRA trackiing information, even if we stop making any IRA contributions - it's not like our IRA holdings just fell off a cliff....
My instruction to clients for IRAs is to keep the form 5498 they get for every tax year in a separate file along with the latest form 8606 if they had non deductible contributions ... making your own excel spreadsheet is wise and easy since you only have to make one entry on it annually. The last form 8606 that you filed is all you ever need for a roll over in later years for the new form 8606.
As I indicated in my answer, operated properly TurboTax does carry forward the basis tracking information, even through years when no traditional IRA transactions are made. "Operated properly" means every year transferring the prior year's tax return file into current year's TurboTax to begin the current year's tax return and never telling TurboTax that you did not make nondeductible traditional IRA contributions, otherwise, as Critter#2 said, you'll need to reenter the carried-forward basis from your most recently filed Form 8606, the only thing that is needed to reenter your basis amount into TurboTax.
However, TurboTax does not always operate properly as I found out a year ago when my wife had to take her first RMD. Her carry forward basis was zero in TurboTax but my basis was fine. I traced that back to 2012 where the IRA Info worksheet showed the correct carry forward basis for both my IRA and my wife's IRA, but when transferred to 2013, my IRA basis was correct, but my wife's basis was zero, so zero carried forward after then. Why my basis transferred, but my wife's did not, I have no idea (and no, I have not tried to reproduce it since those tax years are long gone so it would be useless to report a bug in 2012 or 2013).
But losing basis can happen, even if you transfer every year since it happened to me and it is not obvious that the IRA info worksheet is incorrect if no IRA distribution was taken.
same question. And, the last 2 years I have withdrawn from my Roths. TT did not generate a 8606 for either of us and looks like it won't this year. Why?
The form 8606 tracks your contributions to a traditional IRA. distributions from a ROTH IRA and when funds are converted. If it is a year with none of these, the form is not used. Here is Form 8606 (PDF)
See Where do I find Form 8606?
@tc32 It sounds like you should have had 8606 in your returns. You should go back and create the 8606 and send it in. You can mail the 8606 separately. See Instructions for Form 8606 (PDF) Go back to your old returns, download as if you will amend. You will not amend, just force the 8606 and print it.