My deceased wife's traditional IRA and form 8606

[titan_rx8]

My wife passed in 2022 but her Traditional IRA was not retitled in my name until 2023. She had non-deductible contributions and was tracking on Form 8606. I also have a Traditional IRA and track non-deductible contributions on Form 2606. Questions:

1. Did I "inherit" the IRA in 2022 when she passed or in 2023 when it was retitled in my name? I didn't receive any documentation saying it was inherited in either year. At my request, I kept her "inherited" account separate from mine, so I now have 2 traditional IRAs.

2. In 2023, I used her (now in my name) account for a Roth conversion to my Roth acct. The conversion amount is only a portion of the account, not a full disbursement. There is a 1099-R for the amount of this conversion. There is no indication on the 1099-R regarding an inherited account. Can I ignore the Turbotax question regarding whether this is an Inherited IRA?

3. How do I handle her Form 8606? Turbotax automatically labels the forms as Taxpayer and Spouse. Can I just add the 2022 remaining basis from her 8606 to my 8606 basis? (just have one Form 8606 going forward?)

Thank you!

[dmertz]

1. By operation of law, you inherited the IRA in 2022.
2. What is the code in box 7 of the Form 1099-R?  A distribution from an inherited IRA would be indicated by code 4 in box 7 of the Form 1099-R.  If the code is 1, 2 or 7, the distribution is being reported as coming from your own IRA, not an inherited IRA maintained for you as beneficiary.
3. [You can ignore this because in 2023 you assumed ownership of your wife's IRA.  See my following response regarding how to adjust your basis to include the basis acquired from your wife.]  TurboTax does not support Form 8606 for inherited IRAs, only for your own IRAs.  You have to prepare and maintain Forms 8606 for an inherited IRA outside of TurboTax and provide TurboTax with the taxable amount calculated on that form.  You would also need to include this Form 8606 with your mailed tax return.  Unless you choose to treat the inherited IRA as your own, the basis in the inherited IRA must be kept entirely separate from your own traditional IRAs.

[titan_rx8]

Box 7 is 7.

TT actually required me to uncheck the "spouse" column of the 8606 worksheet (and delete all of the entries in the spouse column) so I recorded all of the data as supporting information and made a copy for my records. (the proportion of the non-deductible contributions is so small compared to the current value of the IRA that it hardly makes any impact on the taxable portion of the distribution)

As a footnote, the custodian wanted to just roll my wife's traditional into my existing traditional, but I asked them to create a new separate account so I could keep these types of records separate as needed.

Thanks for your expertise.

[dmertz · Accepted solution]

I has assumed that "At my request, I kept her "inherited" account separate from mine, so I now have 2 traditional IRAs" meant that you maintained the account as an inherited account.  The code 7 in box 7 indicates that my assumption was incorrect and that you assumed ownership of your wife's account.  Ignore everything in my previous reply having to to with how distributions from inherited IRAs are handled.

Keeping the account as a separate account has no effect on how distributions form your two IRAs are taxed.  For tax purposes, both accounts are treated together as a single account, so there is no tax benefit to keeping the accounts separate.

With regard to the basis in nondeductible traditional IRA contributions acquired from your wife, you must indicate to TurboTax that you have made nondeductible traditional IRA contributions, then, when presented with the opportunity, click the EasyGuide button and indicate that you inherited basis from your spouse and enter the amount of basis acquired.  TurboTax will ask you to provide explanation for this adjustment to your basis.