Form 8606 Non-Deductible IRAs

[Coach209]

Background

I have  a larger traditional IRA with a small non-deductible portion.  I converted part of this traditional IRA to a Roth IRA this past year, in 2023, so I must file Form 8606. This is the second time I have converted some of this IRA to a Roth, so the second Form 8606 I have done.

Also, I have had an inherited traditional IRA that I have had to take RMDs for several years.

My Question
Unlike the first time I did a Roth conversion, TurboTax is putting the inherited IRA RMD distribution in line 7 and the product of the RMD distribution times line 10 in line 12!  This seems odd that the inherited IRA is getting mixed in here with my IRA and it seems to conflict with what TurboTax did in 2020 for my first Roth conversion.

Does this make sense?  Does anyone have any thoughts or hopefully solutions?

Thank you!!

[dmertz]

A Form 1099-R for a distribution from an inherited traditional IRA has code 4 in box 7.  When entering this Form 1099-R, make sure to answer Yes when ask if this IRA was inherited.  Doing so will prevent TurboTax from including the distribution on your Form 8606.

[Coach209]

I checked this box 7 on the 10699-R and it is marked correctly with  a 4" for "death."  However, TurboTax still shows distribution from my inherited IRA on line 7.

Any other ideas??  I appreciate your help!

[dmertz]

For TurboTax to actually treat code 4 as meaning inherited, when asked on the pages that follow the entry of the Form 1099-R details, you must explicitly tell TurboTax that the distribution was from an inherited account.  If you don't do that, TurboTax will (for no good reason) treat code 4 as if it was code 2 or 7.

[Coach209]

dmertz: I will certainly try what you suggest. I will let you know what TT does. Thank you for your suggestions and help!

[Coach209]

dmertz, you solution seemed to work!!  I answered differently to the question, "Did ______ inherit the IRA from Fidelity Investments."  I had answered "No," so I changed this to "Yes." That led to some new TT questions that made my situation quite clear to TT, that I inherited this IRA from my Mom!  Then, the "wrong" line entries went to zero.    Thank you so much. You are a genius in my book.

[dmertz]

TurboTax Product Quality has explicitly declined to correct the horrible wording of that question after I made the suggestion to do so.  For some reason they think its fine.

[Coach209]

Interesting.  It would have been nice for TT to give the reason why they declined. I appreciate you trying to bring this to their attention. I suspect I am not the only person that has answered "incorrectly," according to TT, and then have incorrect results.

Thank you again.

[dmertz]

Many who have made the same mistake have posted here.

TurboTax shouldn't even be asking the question since the code 4 itself already provides the answer.  The only cases where asking the question makes sense is for a distribution from an inherited Roth IRA where the inherited nature of the account cannot be determined from the distribution code.