Nondeductible Contribution After Retirement

[frustratedonline]

Hi!  So my husband retired last year. He began taking a distribution from one IRA. He has another IRA (employer backed IRA if that matters) that he did NOT take a distribution from but he did make a nondeductible contribution to of $480. Since we did not take a contribution, we do not have a 1099 for this one of course. He has done this every year and has completed the correct forms. His basis is roughly $11,000. Neither of the IRAs are Roths.  I have entered the first IRA mentioned per his 1099.  Turbotax then asks me if we made and tracked any nondeductible contributions to any IRA. I indicated yes.  It then asks for basis and I entered the $11,000 figure. After that, I am asked to enter the total value of ALL IRA accounts. Once I enter the value my tax due increases by almost $3000.  I did notice that last year, the non-deductible contribution was entered under Personal>Deductions and Credits>retirement and investments rather than under Personal Income as it is having me do this year. So I tried that and the entry has no effect on my tax bill.  However, there is a statement on the page where I entered it that says if you took a deduction from an IRA you should go back and make the entry under Personal Income which is where I feel I am being double-taxed. I have such limited knowledge of all this…Am I entering this wrong?  Thanks in advance for any help anyone can give!

[DanaB27]

To confirm when you say "another IRA (employer backed IRA if that matters)" is this really a traditional/SEP/SIMPLE IRA? Not a 401(k)?

No, if you only had traditional, SEP, or SIMPLE IRAs then you have entered this correctly. The IRS considers all traditional/SEP/SIMPLE IRAs as one account no matter how many accounts you actually have. Therefore, you have to enter the value of all of your traditional/SEP/SIMPLE IRAs accounts. 

Generally, distributions from traditional/SEP/SIMPLE IRAs are fully taxable unless you had a basis. If you have pre-tax funds and a basis in your traditional/SEP/SIMPLE IRAs then the pro-rata rule applies. This means that with each distribution/ conversion, you will have a taxable and nontaxable part. You can see the remaining basis on line 14 of Form 8606, this basis can be carried forward. Therefore, each distribution/conversion in the future will have a taxable and nontaxable part until the basis is all used.

If you didn't make any contribution for 2022 then you will not enter anything under IRA contributions (deduct traditional IRA contribution).

[frustratedonline]

Thank you so much for the reply. The IRA was a 401k until last year when he retired in June. Then he rolled it over into an IRA. Does that make a difference?  I am going to go through your response now and see if i can apply it!

[frustratedonline]

I should have said it was reported as a rollover on 2021 taxes. Not rolled iver last year. 

[dmertz]

When your husband's employer-provided retirement plan was a 401(k), the balance in that account is not includible on Form 8606 line 6 when calculating the taxable amount of the traditional IRA distribution.  Once that 401(k) balance was rolled over to a traditional IRA it became includible on Form 8606 line 6, making the traditional IRA distribution more taxable and causing more of the basis in nondeductible traditional IRA contributions to remain with your husband's traditional IRAs to be applied to future traditional IRA distributions.

Because that rollover occurred in 2021, that rollover would have similarly affected the taxable amount of any 2021 traditional IRA distributions, but not any traditional IRA distributions before 2021.

[frustratedonline]

Thank you so much!  I understand niw and have entered it correctly.