IRA Cost Basis

[168kenn]

I made nondeductible investments into my IRA.  If I had known about the extra hassle, I would not have made the investments. Anyway, I have my cost basis, and TurboTax carried the balance to this year's tax form. I entered my RMD income amount and my tax amount due was calculated. After I verified my carrier over basis was correct, I entered my 12/31/22 IRA balance. I expected the tax balance due to go down as I wouldn't pay tax on the nontaxable amount but when the tax was recalculated, the tax due went up by 37%. It doesn't make any sense to me. By entering the nod deductible tax basis my taxes went up. Can anyone explain this to me? Thanks

[MarilynG1]

If the Refund Meter increased after you entered your Non-Deductible IRA balance, that probably is not related to that particular entry. 

However, when you entered your 1099-R, if the distribution included your RMD, indicate in TurboTax that 'all of this distribution is RMD'.  RMD is taxable income and is taxed the same as any other distribution.  The only difference is if you indicate that that you 'made a charitable contribution' with part of the distribution, the amount you contributed is non-taxable.

Or, if you didn't take your required RMD, then you would have a penalty assessed.

If you made non-deductible contributions to an IRA in 2022 (Form 8606), this would not lower your taxes, as the income is still taxable, but it would not raise your taxes either.

If you can clarify with more details, we'll try to help.

Here's detailed info on Form 8606.  

@168kenn

[dmertz]

Before you enter the year-end balance in your traditional IRAs, TurboTax assumes that the balance was zero and calculates on Form 8606 an incorrectly high nontaxable amount for your traditional IRA distribution.  Once you enter the correct year-end balance, TurboTax recalculates the nontaxable amount to the lower, correct value, properly increasing  the taxable income and the tax liability from what was indicated previously.

[Critter-3]

The situation that @dmertz  described is correct and that change could also affect other things on the return such as taxable SS benefits and credits/deductions.  The form 1040 is just a long math problem like a river ... change something at the begining of the calculations  will have ripple affects down stream.