Questions Regarding Treatment of Spousal IRA in TurboTax

[Mike71]

My wife died in April, 2019.  She was age 73, and had been making RMDs since age 70.5.  However, she did not make her 2019 contribution before she died.  Her IRA account has been retitled in my name (the brokerage firm considers it "Assumed", which is the same as a Spousal IRA).  The brokerage firm has calculated what her 2019 RMD was, and I have already made that RMD, under my name and tax ID number, and am planning on paying taxes on the distribution for tax year 2019.  The 1099-R for her 2019 RMD will be issued under my name, my tax ID number, and will be coded "7" (Normal Distribution).  I will be writing a letter to the IRS explaining the distribution, due to the fact that my RMDs on my IRA do not start until tax year 2020 (I am currently 69).  She also has a Form 8606 non-deductible basis, which I understand will carry-forward, and will be combined with my IRA non-deductible Form 8606 basis for 2020.

As it regards TurboTax, I am unsure about some of the mechanics of how to handle this.  Questions: 

1. On the 1099-R, there are several check boxes under the section "Inherited" IRA.  I assume that I ignore all of these boxes, since my IRA is "Assumed"?

2. On Form 8606, do I add her Form 8606 non-deductible basis to mine, as if they were combined from the beginning of 2019, or do I keep them separated until 2020?

3. Do I add the total market value of her traditional IRA to my traditional IRA for tax year 2019 Form 8606 calculation?...or do I keep these separated until next tax year?

4. What date do I use for the date of the market value of the IRAs?  Since this is the year of her death, would I use 12/31/2019, or the date of her death in April as the valuation date for the IRAs?

Bottom line...the year that is mechanically causing me the problems is the treatment of the year of her death...2019.  I have done a lot of reading on-line about all of this, and am still confused.

[dmertz · Accepted solution]

I assume that you mean to say that your wife did not make any IRA distributions in 2019.

1.  When entering the 2019 Form 1099-R reporting the distribution of the RMD, answer No, it was not inherited.

2.  Go to the Traditional IRA contributions section under Deductions & Credits, mark the Traditional IRA box, Make any entries regarding your current year contributions, answer Yes when asked if you made nondeductible traditional IRA contributions, then on the Let's Find You IRA Basis page make sure that your own IRA basis is shown correctly and click the EasyGuide button on that page.  Proceed to where you can click the box for "I inherited a traditional IRA before 2019 from a spouse who died" even though you inherited it in 2019, then enter the amount of basis that transfers to you from your wife, the amount from box 14 of her 2018 Form 8606.  TurboTax will prompt you to prepare an explanation for this adjustment to your basis where you can also explain that the distribution reported on the Form 1099-R satisfied your wife's 2019 RMD, no need for a separate letter that would require you to mail your tax return instead of e-filing.

3.  Your 2019 Form 8606 will be prepared normally.  Your 2019 year end value in traditional IRAs will include the balance of the IRA that you inherited from your wife and treated as your own since it is now your IRA.

4.  The balance used on line 6 of Form 8606 is the year-end balance of your traditional IRAs.

[dmertz]

I changed my answer to #1 above.  Please reread it.

[Mike71 · Accepted solution]

Thank you very much for the very helpful response.  You were correct, I meant to say that my wife did not take her 2019 RMD distribution, not contribution.  I made the changes which you suggested, and it seems to work fine in TurboTax Premier.

[marievbritt]

In TurboTax Premier for 2019, I don't understand why TurboTax doesn't correct the Easy Guide "I inherited a traditional IRA before 2019 from a spouse who died".  Those of us who actually did inherit a traditional IRA in 2019 from a spouse who died in 2019 think that we cannot use it.

[AmyC]

The IRS Inherited IRA directions state that you can use the RMD of your spouse the year they died. This is frequently the case. I am sorry for the confusion.  If you see a place to comment on the program, please mention it! Different users see the survey in different places.

@marievbritt