How to Correct a 1099-R Entry?

[DFH]

Along with many other users, I have been baffled that TTax keeps failing to track the basis of a Tradition IRA from year to year.  After reading the thread https://ttlc.intuit.com/community/retirement/discussion/form-8606-non-deductible-ira-tracking/00/775..., I understand that the problem arises from the wording of one of the interview questions that has led many to answer it “No” incorrectly.  TTax asks for each 1099-R whether “you made any nondeductible traditional IRA contributions” to the account.  At least some of us with basis tracking problems assumed this question refers events in the tax year being reported.  (Others might not recognize that “nondeductible” contributions are contributions of funds already taxed.)  This question should have been phrased “Have you EVER made (OR ROLLED OVER) nondeductible (AFTER-TAX) contributions to this IRA.”  Do others agree that this is the meaning of the question currently asked by TTax?

However, now while in the “Your 1099-R Entries” page when I try to edit the information for my Traditional IRA that has a basis, the nondeductible contributions question is no longer among those asked.  I also tried adding a new 1099-R with that IRAs information but a slightly different title (expecting to then delete the older version), but the contributions question wasn’t asked.

How can I correct the answer to the question that TTax no longer is asking, either in the dialog or forms mode of the program?  I am using the Deluxe version for 2019 on a CD purchased from Costco.

[macuser_22]

The question asks "if you made and kept track of any nondeductible contribution to your traditional IRA from 2018 or prior years"

"Any" seems rather clear but the "nondeductible contributions" is a link to an explanation.

And the IRA owner should  certainty be aware if they did so because they are required to file a 8606 form as part of their tax return for each non-deductible contribution in the year that the contributions was made - that is how it is tracked - on a 8606 form.

That question should be asked if you are entering a 1099-R that has the IRA/SEP/SIMPLE box checked.

Enter a 1099-R here:

Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security,
IRA, 401(k), Pension Plan Withdrawals (1099-R).

OR Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

Be sure to choose which spouse the 1099-R is for if this is a joint tax return.
Be sure to pick the correct 1099-R type: Standard 1099-R, CSA-1099-R, CSF-1099-R, RRB-1099-R.

[NOTE: When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.]

You will be asked of you had and tracked non-deductible contributions - say yes. The enter the amount from the last filed 8606 form line 14 if it did not transfer. Then enter the total value of any Traditional, SEP and SIMPLE IRA accounts that existed on December 31, 2019.

That will produce a new 8606 form with the taxable amount calculated on lines 6-15 and the remaining carry-forward basis on line 14.

NOTE: If there is an * next to line 15 then 6-15 will be blank and the calculations will be on the "Taxable IRA Distributions worksheet instead.

[DFH]

@macuser_22, thanks for your reply.  I tried editing the existing 1099-R from exactly the location in TTax that you specify.  However, I didn't get asked the question about nondeductible contributions under discussion (though I remember seeing it before when entering 1099-R data). 

All of the withdrawal went to QCDs, and the total withdrawn exceeded the RMD from that IRA.  Could that have anything to do with the fact that the question about nondeductible contributions isn't asked?

As I wrote initially, I also tried creating another version of the 1099-R for the IRA with basis from the same location of the TTax interview, and still I didn't get the question.

Incidentally,  isn't it true that if I had satisfied the total of all the RMDs required (based on their 12/31/18 balances and my age) with withdrawals from other IRAs which contain no bases, the IRS imputes a fraction of that total is return of nondeductible contributions not to be taxed?  If so, then correctly answering the nondeductible contributions question for each IRA would not produce the correct result, namely that the basis of an IRA from which there was no withdrawal is nonetheless decreased.

[macuser_22 · Accepted solution]

---

@DFH wrote:

All of the withdrawal went to QCDs, and the total withdrawn exceeded the RMD from that IRA.  Could that have anything to do with the fact that the question about nondeductible contributions isn't asked?

Incidentally,  isn't it true that if I had satisfied the total of all the RMDs required (based on their 12/31/18 balances and my age) with withdrawals from other IRAs which contain no bases, the IRS imputes a fraction of that total is return of nondeductible contributions not to be taxed?  If so, then correctly answering the nondeductible contributions question for each IRA would not produce the correct result, namely that the basis of an IRA from which there was no withdrawal is decreased.

---

That's the answer.   A QCD can ONLY come from before-tax money in the IRA and does not effect any basis - so the question will not be asked if the entire distribution was a QCD.

A QCD is excluded from taxable IRA income, since any after-tax basis in a IRA is not taxable, a QCD cannot be excluded from it so a QCD distribution does not reduce or affect any basis in the IRA.

And no, the IRS does not impute anything.   For tax purposed you only have ONE Traditional IRA that is the aggregate  total of all existing IRA accounts.  The yearly 2019 RMD based on the total value of all IRA accounts as of December 31, 2018 can be taken from any one or several IRA accounts.

[DFH]

@macuser_22, again thanks for your reply.  It’s a relief that you believe TurboTax and I are both without error in this matter (even though I understand your belief isn’t tax advice).  I have two follow up questions I request that you consider:

1. Form 8606 Question

Since I usually give at least all of my aggregate RMD to QCDs, does TTax continue to propagate the unchanged basis of that IRA that has basis from one year to the next, or must I use its Forms mode to manually enter data into the IRA Information Worksheet (so it will transfer the basis to Form 8606) for the basis to be carried forward?

1. TurboTax Internal Calculation Question

If one has multiple IRAs with one containing a mixture of pre- and post-tax contributions, and he withdraws the necessary aggregate RMD from the IRAs without basis, but doesn’t give any or all of the RMD to QCDs, don’t IRS rules require that the basis of the untouched IRA be reduced using its pro rata formula?  That is my understanding of https://www08.wellsfargomedia.com/assets/pdf/personal/investing/retirement/taxes-and-retirement/pro-....

If my understanding of this tax rule is correct, does TurboTax make the required adjustment to the aggregate IRA bases, even though there was no withdrawal from the IRA that contained post-tax contributions?

[macuser_22]

A distribution form ANY Traditional IRA account that is not part of a QCD requires a 8606 to be filed if you have non-deductible basis in any IRA.    Answer the 1099-R question that I posted above will automatically add that 8606.

If all of your RMD is a QCD then no 8606 will be prepared or filed and the last filed 8606 remains in effect.   If you transfer TurboTax each year then the accumulated total basis should carry forward year-to-year on the "IRA Information Worksheet" Part III line 12 (although TurboTax has been known to "loose" that carry forward - I believe 2012 was such a problem year for a few taxpayers - including me).

Keep in mind that if you *always* only distribute the RMD and it is ALL a QCD then when the IRA value reached zero, the unused basis will be lost - although that would not be a real loss because the QCD is not taxable anyway (which is why the basis is not applied to it - you cannot make a non-taxable distribution any more non-taxable by applying non-taxable basis to it.).

[macuser_22]

---

@DFH wrote:

If my understanding of this tax rule is correct, does TurboTax make the required adjustment to the aggregate IRA bases, even though there was no withdrawal from the IRA that contained post-tax contributions?

---

Additionally -  There is NO Traditional IRA that contains the post-tax contributions.  

You can NEVER withdraw ONLY the nondeductible part - it must be prorated over the entire value of ALL Traditional IRA accounts which include SEP and SIMPLE IRA's. (For tax purposes you only have ONE Traditional IRA which can be split between as many different accounts as you want, but for tax purposes they are all added together).

Any non-deductible after-tax contributions to ANY Traditional IRA account becomes a basis that applies to the aggregate total of ALL Traditional IRA accounts (that includes SEP and SIMPLE IRA's) - it does not matter which account you take the distribution from - the basis applies it.

For that same reason the years total RMD that is based on the aggregate total prior years end market value can be taken from any one or several IRA accounts because they are all the same IRA.

[DFH]

macuser_22 wrote:

 (although TurboTax has been known to "loose" that carry forward - I believe 2012 was such a problem year for a few taxpayers - including me).

From what I’ve read on this Forum, answering the nondeductible contributions question “No” causes TurboTax to discard its record of IRA basis in any year.

Have you any idea why, when I tried entering a test Traditional IRA from the location in TurboTax that you specify (in your initial reply) in the interview, TurboTax failed to ask me the nondeductible contributions question?  I tried closing the program and then re-launching it to no effect.

Since I now can’t get TurboTax to ask me the nondeductible contributions question, even for a ‘new’ IRA, do you have any guidance on how to correct the fact that when asked, I incorrectly answered the nondeductible contributions questions “No” with respect to all my Traditional IRAs?  I would like TurboTax to produce Form 8606 and include it in the electronic package to the IRS in 2019 and future years, which it has not be doing.  

[DFH]

macuser_22 wrote:  "Additionally -  There is NO Traditional IRA that contains the post-tax contributions. "

I “rolled over” funds from a tax-advantaged company retirement plan to what I thought is properly called a Traditional IRA.  These funds were a mixture of before- and after-tax contributions.

macuser_22 wrote: “You can NEVER withdraw ONLY the nondeductible part…”

My questions about this are 1) do IRS rules allow withdrawal of only deductible part of an IRA if the funds don’t go to a QCD, and 2) if not, does TurboTax correctly prorate the components of the aggregate withdrawal and update the basis remaining.  I think the answer to 1) is No, and to 2) is Yes.

[VolvoGirl]

---

@DFH wrote:

From what I’ve read on this Forum, answering the nondeductible contributions question “No” causes TurboTax to discard its record of IRA basis in any year.

Yeah that happened to me when I was doing my friend's return one year.  I must have answered no and it stopped carrying over the 8606 info.  A couple years later when I realized it I Amended the returns for it and she got refunds.  After I figured out the amount from the prior year I was able to answer Yes and enter it and continue on.  

[macuser_22]

---

@DFH wrote:

I “rolled over” funds from a tax-advantaged company retirement plan to what I thought is properly called a Traditional IRA.  These funds were a mixture of before- and after-tax contributions.

My questions about this are 1) do IRS rules allow withdrawal of only deductible part of an IRA if the funds don’t go to a QCD, and 2) if not, does TurboTax correctly prorate the components of the aggregate withdrawal and update the basis remaining.  I think the answer to 1) is No, and to 2) is Yes.

---

#1  No.  You can NEVER withdraw ONLY the nondeductible part - it must be prorated over the entire value of ALL Traditional IRA accounts which include SEP and SIMPLE IRA's. (For tax purposes you only have ONE Traditional IRA which can be split between as many different accounts as you want, but for tax purposes they are all added together).

For example using rough figures: if you had $60K of nondeductible contributions in an IRA with a total value of $600K (10:1 ratio), then when you take a $60K distribution from any IRA account $6,000 would be nontaxable and $54,000 would be taxable (same 10:1 ratio) , with the remaining $54K of basis staying in the IRA for future distributions. As long as there is any money in the IRA, there will be some basis.

TurboTax will ask for your non-deductible "basis" and then the *Total Value* of *all* Traditional IRA, SEP and SIMPLE accounts as of Dec 31, of the tax year. That is so the prorating of the basis can be properly proportioned between the current years distribution and the remaining IRA value. That is done on the 8606 form.

#2 Yes.   That is done on lines 6-15 on a 8606.

Also note that if you rolled a 401(k) into a Traditional IRA that had after-tax basis then you must manually enter that when the 1099-R interview asks for prior years after-tax basis.    That will only happen if you are entering a 1099-R that has the IRA/SEP/SIMPLE box checked and a code 1, 2, or 7 on box 7 and there is a taxable amount that will go on the 1040 line 4b.  If the distribution is not subject to tax then the question is not asked and no 8606 is produced.