Does anyone know why Turbo Tax basic handles IRA minimum distributions incorrectly?

[cliffgiles]

Despite entering the correct taxable income amounts for two IRA distributions (Item 2a), Turbo Tax used the gross distributions (Item 1) to calculate my taxable income.

[dmertz · Accepted solution]

Traditional IRA distributions are fully taxable unless you have basis in nondeductible traditional IRA contributions or if you made a Qualified Charitable Distribution from your IRA.

If you have basis in nondeductible traditional IRA contributions, click the Continue button on the Your 1099-R Entries page, indicate that you made nondeductible contributions to your traditional IRAs, then enter or confirm you net basis in nondeductible traditional IRA contributions.  Also enter you December 31, 2016 balance in traditional IRAs.  TurboTax will prepare the Form 8606 required to determine the taxable amount of your traditional IRA distribution.

If you made a Qualified Charitable Distribution from your traditional IRA, indicate this in the follow-up to entering your Form 1099-R.

[cliffgiles]

OK, that answers my question; however, the fact that I'm asked to enter the taxable amount of the distribution led me to believe that Turbo Tax had the information it needed. If the entered gross and taxable amounts differ, TT ought to force me to enter the necessary information to fill out the Form 8606 without my knowing to hit the Continue Button. Fortunately, I only use Turbo Tax to prepare an estimate for my CPA, who got it right.

[dmertz]

TurboTax only asks you to separately determine and enter the taxable amount if the distribution from an inherited IRA, reported with code 4 in box 7.  If the deceased had basis in nondeductible traditional IRA contributions, you must prepare outside of TurboTax a Form 8606 to calculate the taxable amount paid to you from the deceased's IRAs of which you are the beneficiary.  You'll then enter the taxable amount from line 15 of that Form 8606.

Box 2a from any Form 1099-R reporting regular distributions (including distributions of RMDs) from an IRA is always to be ignored and box 2b Taxable amount not determined is always to be marked, per the IRS instructions for Form 1099-R.

[cliffgiles]

Sounds like details only a CPA would know. The TT entry form needs to be more informative for use by non-experts.