QCD with Deductible and Non Deductible IRA

[ctopkis]

Hello,

I have and interesting situation that I don't know exactly how to handle. I entered the 1099-R's for our RMD's and on 1 of them we made QCD's. Turbo Tax recorded on line 4a the total distributions without regard to the QCDs. I believe line 4b would normally be the net amount of the total distribution minus the QCDs. However, a couple years ago a financial advisor did something that wasn't very smart and combined a deductible and a non deductible IRA together. He did this for my wife as well. 

So now I go and complete the 8606-T and 8606-S that proportionally determines how much of my IRA distributions are actually taxable and puts that into the 1040 Line 4b. But this line no longer includes the QCD. 

Should I manually change the amount on line 4b and enter a note explaining what I did or is there something I missed which would reflect the "Total Distributions minus the non taxable portion minus the QCDs"?

Help would be appreciated.

[dmertz · Accepted solution]

"However, a couple years ago a financial advisor did something that wasn't very smart and combined a deductible and a non deductible IRA together."

Nothing wrong with doing so.  No particular one of your traditional IRAs contains your basis in nondeductible traditional IRA contributions no matter which account received the nondeductible contribution.  The basis belongs to you, not any particular one of your traditional IRAs.  Despite the name of Form 8606, there is no such thing as a nondeductible traditional IRA, only basis in nondeductible contributions that apply to all of your traditional IRAs in aggregate.    Because all of your traditional IRAs are treated in aggregate, it doesn't matter which of the IRAs the QCD was made from.  All that matters is that there were sufficient pre-tax funds in your traditional IRAs (in aggregate).

If you correctly indicate to TurboTax that some or all of the distribution from the account from which the QCD was made was QCD, TurboTax will exclude it from Form 8606 entirely and exclude it from Form 1040 line 4b with the "QCD" notation.  If you don't see that, you've entered something incorrectly.

[ctopkis]

Thank you for the information but can you please answer another question regarding the same area. Should Line 7 of the 8606 include distributions from a Beneficial IRA? If not, how do I get Turbo Tax to exclude it. Secondly, on Line 2 of the IRA Information Worksheet, should Beneficial IRA's be included in the Year End Values? Thank you.

[dmertz]

"Should Line 7 of the 8606 include distributions from a Beneficial IRA?"

No.  After entering the details of the code-4 Form 1099-R TurboTax will present a page where you need to indicate that the IRA was inherited.  (Odd that TurboTax does not just go by the code 4, but that's the way TurboTax works.)

"should Beneficial IRA's be included in the Year End Values?"

No.  Everything about an inherited IRA (except an IRA inherited by the surviving spouse who chooses to treat the IRA as the surviving spouse's own) must be kept entirely separate from the individual's own IRAs.

[ctopkis]

Thank you very much!