Why does tax due go up based on value of IRA?

[sdc12]

TurboTax asks for the
Value of my Traditional, SEP, and SIMPLE IRAs on December 31 2021. It says this information is sent in the mail on Form 5498 which I didn't get. I enter the information from my IRA end of the year statement and when depress "Continue" button the Federal Tax due goes up by $725. This makes absolutely no sense.

[DanaB27 · Accepted solution]

I assume you had some nondeductible contributions (basis) in the traditional IRA and took money out/ converted the funds.

If you have funds/ value left in the traditional, SEP, and SIMPLE IRAs on December 31, 2021,  then each distribution will have a pro-rated amount allocated to nondeductible contribution (tax-free) and deductible contributions and earnings (taxable). Therefore, when you entered the value a higher amount became taxable because of the percentage allocated to deductible contributions and earnings.

If this doesn't answer your question then please provide more details and we will be happy to assist you.

[sdc12]

I did not withdraw any money from my Traditional IRA and I am only 69 years so I am not required to also.  I did not receive a Form 5498 but Turbotax "doesn't say to not enter" the value of my Traditional IRA  on December 31, 2021 if this form is not received.  It seems this may be an issue with the Turbotax version I am using. I was never required to enter the value of my IRA or my wife's in previous years either.

[DanaB27]

To clarify, did you have any retirement distributions or rollover or conversions on Form 1099-R?

[fanfare]

If you did nothing in 2021, why are you in the 1099-R IRA section of TurboTax ?

[sdc12]

No I didn't have any retirement distributions or rollover or conversions on Form 1099-R. I talked to an individual from Turbotax Customer Support and it sounds as if there may be a bug in the software. I have an open case with them and they will try to get a resolution to the issue. I am only 69 years old and no RMD is required on Traditional IRAs. Turbotax just asked for you to put in the Value of your Traditional IRA o December 31, 2021 and then once you depressed the continue key, it calculated that I owed an additional $725 in Federal Taxes.

[fanfare]

Did you do something last year and import your tax file.?

You may have a 1099-R dangling from last time.

[sdc12]

I am not in that section, the software asked if I made non-deductible contributions 2020 or before which I did and then it wanted to know my basis and what the value of the Traditional IRA was. That is when I ran into what I believe is a bug in the Turbotax software. I just filled in one the questions that wanted to know what the value of my Traditional IRA was on Dec 31, 2021 and when I put that value in, the software calculated that I owed $725 more in taxes.

[fanfare]

go back and change that year end value back to zero

OR

use better tax prep software.

[sdc12]

I already did change the value to zero, but thanks for the suggestion.  I believe that I already explained to you that I felt it was a bug in the software.

I called Turbotax Customer Support and  the person that I am dealing with is reporting this issue and will get back to me when Turbotax has a resolution.

With all the changes to tax codes each year, I would expect there would be some issues with any product out on the market from time to time.  I have been using Turbotax for over 12 years and really have had very few issues with the software.  As to your suggestion to "use better tax prep software", I am guessing that you use Turbotax as well or you wouldn't be responding to my post.

[fanfare]

No, I don't use TurboTax software.

I use better tax software.

Anyone can post on this forum.

[sdc12]

Ok, that now makes sense.

[sdc12]

Ok, your comment now makes sense.

[sdc12]

fanfare,

After doing more research, I believe the error was all mine not the software.  I did get a distribution from an Inherited IRA and didn't equate that to a Traditional IRA . The last time I did take a distribution (tax year 2018) the IRAs, Pensions, and Annuities were all lumped together on Form 1040 - line 4a total and taxable portion line 4b. So this didn't jump out to me when I reviewed. I believe the calculations must have been done at a different point in the program (probably when I entered the 1099-R forms information) and then seemed logical that year..

In order to calculate the portion of the IRAs distributions that is non-taxable, it uses the basis and divides by the total value and then multiplies that percentage times the distribution. This determines what portion of the overall distribution was non-taxable.  It all seems to make sense now to me.  I believe if the wording on the question would have included values of inherited IRAs as well 0n 12/31/2021, I may have been able to understand why the increase in taxes owed occurred at that point in the program.

Anyway thanks to all who provided suggestions and advice 

sdc12

[fanfare]

@sdc12 

Note: you are piggybacking on TurboTax's basis computation for an IRA, which is supposed to be your IRA.

So far, so good.

If you start taking money from your own IRA that has a basis, the recorded history will be all jumbled up and wrong.

TurboTax can't support two IRAs under your SSN both with a basis.