Will an Inherited IRA (with no basis) impact my Form 8606 for my own IRAs?

[sandy4042]

Specifically, on line 6 and line 7, which asks for the "value of all your traditional, SEP, SIMPLE IRAs for year X" and "distributions for year X"  do I include an inherited IRA in these amounts?  Also I have been receiving distributions from the inherited IRA for a few years now, but have not filed a Form 8606 for it, as it was all pre-tax money, is this correct?

[dmertz · Accepted solution]

You are not to include anything regarding inherited IRA on a Form 8606 reporting contributions to or distributions from your own IRAs.

If the inherited tradition IRA had basis in nondeductible contributions, you would prepare a separate Form 8606 outside of TurboTax and supply TurboTax with the result.  TurboTax does not support preparation of Forms 8606 for inherited IRAs.  However, since the traditional IRA that you inherited has no basis in nondeductible contributions, no Form 8606 is to be used for distributions from this IRA.  The entire amount of the distribution is taxable.

Note that if a surviving spouse inherits a traditional IRA from their deceased spouse and chooses to treat it as their own, it's no longer an inherited IRA and the balance and basis from the inherited IRA become part of their own IRAs.

[sandy4042]

Thanks for your clear answer.

Just double checking here....when I start withdrawing RMDs from my IRAs, the inherited non-spousal IRA is not aggregated with my IRAs to figure the RMD from my own IRAs?  I am already collecting the RMD yearly for the inherited IRA.  I also have a 401K with a former employer, can you verify that its RMD is calculated separately from the IRAs (think I read that someplace).

[dmertz · Accepted solution]

Correct on everything.

[sandy4042]

Thank you.

[rahines_01]

Hello!

Turbo Tax is automatically including my distribution from my inherited IRA (which has no after tax basis) in the form 8606 along with the distribution from my Traditional IRA (which does have basis).  In the Form 1099-R for my inherited IRA in Turbo Tax, the box is checked that it was a inherited from a non-spouse.

I'm trying to override the numbers on the 8606 form to exclude the inherited IRA distribution, but it's not working (getting the Not Done ! error).  How can we fix this? 

Thanks!

[dmertz]

This bug has been reported.  Some suggestions were made regarding possible workarounds, but none seem to provide a stable result.  Using an override will prevent you from e-filing, so really you'll need to await a fix for this bug to be able to e-file.

[rahines_01]

got it.

Thank you!

[Rawood]

I have a very similar problem - I received a 1099-R for an inherited non-spousal IRA with no basis, and also made nondeductible contributions to my own IRA.  TurboTax is putting both into Form 8606 and not treating the inherited IRA as fully taxable.

I actually spoke to a TurboTax specialist yesterday, who clearly didn't know this bug exists and told me that TurboTax was handling this correctly.  I was pretty sure that was not right, and more sure now that I've read this post.

Is there any way to make sure Turbo Tax know there are other people having this problem, and to have them alert us when it is fixed?

Thanks.

[dmertz]

The reporting of this problem has been acknowledged in at least one of the other many threads on this forum by one of the forum administrators.  That's about all anyone will hear until the the fix just appears in an update to 2020 TurboTax.  Someone might come along and update this thread when that happens, but there is no guarantee.  As far as I know, no "containment" article has been posted for this bug.

[SJGTX]

I reported this same issue on a different thread, and as some have reported, the workaround is temporary.  The incorrect entry shows up again once TT is reopened.  I just reported this bug AGAIN to Turbo Tax - long time on hold, long discussion with agent, etc. They are supposed to email me when the fix has been completed, but I'm not holding my breath. If I hear anything, I will try to report it on the Community board.

Here is my plan if this doesn't get resolved before filing deadline: Since the workaround of toggling the deductible/non-deductible contribution button on the IRA provides a temporary fix, the agent thought there shouldn't be a reason why we can't e-file while the file is open and the information is correct (no guarantees, but thought it would work.) That way, at least the correct information will be transmitted to the IRS.  Since the glitch erroneously uses part of one's personal traditional IRA cost basis when it includes the inherited amount on Line 7 of the 8606 (where it doesn't belong), next year's carryover cost basis on TT will likely not reflect the correct cost basis. You will have to remember to update the cost basis next year. It appears to be a user entry option, but it does ask for an explanation of why the cost basis is different than Turbo Tax's calculations. What I don't know is whether the carryover cost basis remains corrected once you do the manual update next year or if we'll be stuck doing this every year.  The way I figure it, if you do a manual override on the forms and get the red exclamation point which will prohibit you from e-filing, you will still have the incorrect cost basis carryover to deal with either way. Much better if TT fixes the error.

[Mf16]

I’m having the exact same problem. I called TurboTax support, but the agents I talked to clearly did not understand the issue and were very unhelpful. It’s extremely disappointing considering that TurboTax advertises itself as a premium product.

[rahines_01]

Is there any way to reach out to the forum administrators to recommend a fix? 

It appears that TT is supposed to automatically populate line 1c on the Form 1099-R Summary from the "third and fourth check boxes in the inherited IRA section of the Form 1099-R Worksheet".   TT is ignoring this information and not populating this field.  I've overridden this field with the correct information and that fixes all of my calculations to get to the correct result, but as you said, I cannot e-file with an overridden field.   Worse case scenario is to print out my return and mail if not fixed by the due date.

So disappointing, to spend good money on a product that isn't calculating my taxes correctly. 

[DaraLO]

We are aware of this issue and are working diligently to resolve it.  If you’d like to receive progress status updates, please sign up here.

Reference:  Why am I getting a "Check This Entry" error for my Form 8606?

[SJGTX · Accepted solution]

This bug has been fixed! The issue with the Inherited IRA distributions showing on Form 8606 appears to have been resolved as of 3/5/2021. Make sure you download the updates from 3/4/2021. Recently, there have been related reports on the support forum from many saying they were getting error messages about Form 8606 when trying to file even if they didn't have an Inherited IRA. but I suspect Turbo Tax put a hold on anyone filing an 8606 until they got the Inherited IRA issue resolved. In any event, I was able to e-file successfully and the figures from the Inherited IRA distribution were correctly populated on the return. Whew!