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

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.

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).

Correct on everything.

Thank you.

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!

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.

got it.

Thank you!

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.

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.

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.

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.

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. 

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?

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!

Questions were confusing and when I selected that I inherited the IRA from my spouse and made it part of my IRA, Turbo tax did not automatically generate 8606 as it should have,  I think that still needs to be corrected. You need to select that it is not an inherited IRA to get the form. 

If you inherited the IRA from your spouse and elected to treat it as your own, it is no longer considered an Inherited account.

Please enter that IRA as your own going forward. 

"Spouses have more flexibility in how to handle an inherited IRA. For one, they can roll over the IRA, or a part of the IRA, into their own existing individual retirement accounts"

Inherited IRA by spouse

I took a distribution from my non-spouse inherited IRA (with no basis) in 2021, and I have a traditional IRA (with a basis) with zero dollar contribution for the same year. After entering the inherited IRA 1099-R for the distribution, I was trying to see if I can contribute some funds to my own transitional IRA, and here arrives the confusion:
1> Do I need to file a Form 8606 to begin with? I didn't make a nondeductible contribution to or took a distribution from my own IRA nor did I covert part but not all to a Roth IRA.
2> Why my own IRA basis to be part of the inherited IRA distribution tax calculation? Why do they both appear on the same form 8606?
3> Why does the 2021 year-end value of my traditional IRA need to be entered in line 6 while the distribution is from the inherited IRA? Do I enter the value of the inherited IRA instead or do I need to add both of the inherited and the traditional IRAs values together?
I am not a tax expert but something doesn't seem right to me. Can anyone help? I don't want to file the return and got rejected.

Warm Regards,

1.  If you made no nondeductible contribution for 2021, made no distribution from your your own traditional IRAs in 2021 and made no nonqualified distributions from a Roth IRA in 2021, your 2021 tax return will not include Form 8606.  Your last filed Form 8606 continues to show your current basis in nondeductible traditional IRA contributions.

2.  It's not.  Distributions for the inherited traditional IRA with no basis go nowhere on any Form 8606.  the taxable amount of the distribution from the inherited traditional IRA is the entire gross amount.  The year-end balance in the inherited traditional IRA is to be entered nowhere in TurboTax.

3.  See #1 and #2.  @VMOO , it seems that you may have failed to indicate to TurboTax that Form 1099-R from the inherited IRA is indeed an inherited IRA.  Even though this Form 1099-R has code 4, you must answer Yes on the page that asks if this IRA is inherited.

Great information, but I wanted to add that last year with 2020 taxes there was a known issue/glitch with reporting on Form 8606, and inherited IRAs were incorrectly showing up on Form 8606. In my case, Turbo Tax was erroneously using up part of my traditional IRA basis towards my inherited IRA distribution.  The issue was finally corrected last year,  but wanted to mention it in case this glitch is showing up again in 2021!

@dmertz

You hit the nail on the head, that was very helpful. 

Thank you so much! 🙂

Now it's 2023 and hopefully, the bug(s) discussed in 2021and 2022 posts have been fixed...

I was the designated beneficiary on my brother's 401(k) which was rolled over into an IRA-BDA  at Fidelity in 2022. The basis is zero.

Just to be clear, TT will not complete a separate 8606 for this account and will not combine this account with my non-inherited IRAs shown on previous 8606's.

and...

For the years I decide to take distributions under the 10 Year Rule, all I have to do is correctly answer the questions TT asks about the related 1099-Rs and TT will add the distributions to 1040-SR, Line 4a, without changing. Nothing else.

Correct? Thx.

IRS has clarified that yearly RMDs are required on newly inherited IRAs under the 10-year rule if the decedent died after their required beginning date for RMDs.

IRS will enforce this rule with the 2023 tax year and beyond.

--

when you are subject to the 10-year liquidation rule for newly inherited IRAs,
to spread the tax impact most evenly over the ten years,
your divisor should be :   10 - N where N is the number of entire anniversary years gone by.

In other words, with four years gone by, you want to take out one sixth of the IRA in the fifth anniversary year.
If you are a young beneficiary, or even not so young, this rule would generate much larger RMD than the RMD based on Pub590B formulas.

Is this a recent IRA clarification?  I thought with the Secure Act, the beneficiary of a decedent's IRA (with certain exceptions, e.g., spouse, disabled person) had 10 years to empty out the IRA, in any annual amount they choose over 10 years.  If the decedent had already began their RMD, the beneficiary would be responsible for receiving the RMD (and paying taxes on it) in the year of death, if the decedent had not already taken it.  

I just checked the IRS website, and the verbiage is the same as earlier:

" For defined contribution plan participants, or Individual Retirement Account owners, who die after December 31, 2019, (with a delayed effective date for certain collectively bargained plans), the SECURE Act requires the entire balance of the participant’s account be distributed within ten years.  There is an exception for a surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person or a person not more than ten years younger than the employee or IRA account owner. The new 10-year rule applies regardless of whether the participant dies before, on, or after, the required beginning date, now age 72."

The question occurs to me (though thankfully hasn't happened in my particular case with an inherited IRA) what if a taxpayer has their own IRA and an inherited IRA, and they both have a basis?  That is, the amount of tax already paid needs to be subtracted proportionally when calculating the taxes on the distributions.  Do two separate Form 8606's need to be filed?  If yes, does TT generate both forms?