RMD 1099s and form 8606

[longdog]

I already entered my RMDs distributions on 1099R forms. Why is Turbo Tax asking for the value of my traditional IRA?

When I enter the value, the tax amount due shoots way up.

[MarilynG1]

The total value of your IRAs is needed because you took a distribution from your account and the Form 1099-R probably indicates that the 'taxable amount cannot be determined' or you indicated that there had been non-deductible contributions to the IRA in the past.

When you have basis in nondeductible traditional IRA contributions, the year-end value of your traditional IRAs is necessary to accurately prepare Form 8606 to determine the taxable amount of a traditional IRA distribution (reported on your 1099-R).  Until the value is entered, TurboTax assumes a $0 year end value and the calculation produces an inaccurately low taxable amount.

Here's more info on Why does IRA Basis Increase Tax?

@longdog 

[longdog]

Taxes were already taken on the RMD distribution.

[dmertz]

Tax withholding is nothing more than a down-payment toward the overall tax liability determined on your tax return.  It does not apply to any particular item of income.  The taxable amount of your traditional IRA distribution is not determined until Form 8606 Part I is prepared and the incremental tax liability resulting from this distribution is not determined until your tax return is fully completed.

[longdog]

Makes sense but you only do an 8606 when you have nondeductible contributions so you never enter the total value of your regular IRA with no nondeductible contributions. I guess that is what is really confusing between the two.

[dmertz]

The only other case where TurboTax asks for the year-end value of your traditional IRAs is when you have made an excess contribution and TurboTax needs to determine the amount that is subject to penalty.  The amount subject to penalty is the lesser of the amount of the excess or your year-end balance in traditional IRAs.  However, your original question implied that Form 8606 is involved, so it seems that you have basis in nondeductible traditional IRA contributions and need to determine the taxable amount of a distribution as previously described, which requires knowing your year-end balance.

[longdog]

I have an 8606 with a basis on my IRA. My husband has an IRA with no nondeductible contributions so no 8606. His 1099R also has the taxable amount not determined block checked. So how is the correct taxable amount of his RMD determined? 

[JamesG1]

TurboTax Online will use the Simplified Method or the General Rule to determine the taxable portion for box 2a of your 1099-R.   Presume that:

• Monthly payments were received,  
• Payments started in 2022, and 
• That box 7 is code 7.

You will need to know:

• The amount of the employee contributions (may be in box 5),
• The date the annuity started,
• The number of months that payments were received in 2022, 
• The age of the recipient when the annuity started,
• The age of other beneficiaries (if there are any), and 
• Was the recipient under the retirement age for the plan.

Follow these steps:

• At the screen Who gave you a 1099-R, select Financial Institution or other provider (1099-R).
• At the screen Any Periodic Payments? select Yes, got regular payments from this retirement account.
• At the screen Payment Start Year select Yes started getting payments in 2022.
• At the screen Let’s figure Out How Much is Taxable, select I need to figure out how much of this money is taxable.
• At the screen Enter Annuity Information enter required information.  Plan Cost may be in box 5.
• At the screen Enter Ages enter required information.

View Federal 1040 tax return line 5a and 5b at Tax Tools / Tools / View Tax Summary / Preview my 1040.

@longdog 

[longdog]

It's an IRA with an RMD not an annuity.

[LindaS5247]

The total value of your IRAs is needed because you took a distribution (your Required Minimum Distribution) from your account and the Form 1099-R probably indicates that the 'taxable amount cannot be determined' or you indicated that there had been non-deductible contributions to the IRA in the past.

If any of your IRA accounts have a mixture of pre-tax and after-tax money (or deductible and non-deductible contributions), then every distribution from any of your IRAs is deemed to be a mixture of pre-tax and after-tax money.  Therefore, the total value is needed to determine what portion of the distribution is taxable.  

Entering the year-end balance allows TurboTax to do a correct calculation of the nontaxable and taxable amounts of the traditional IRA distribution that was reported on the Form 1099-R.  Without the entry of the year-end value, the calculation result is erroneous because TurboTax assumes a zero year-end balance in the absence of the entry.  The correct calculation reduces the erroneously high refund amount or the erroneously low balance due with your tax return.

You can see the calculations on Form 8606 Part I.

"Enter your nondeductible contributions to traditional IRAs for 2022, including those made for 2022 from January 1, 2023, through April 18, 2023."

You can Preview your Form 1040, prior to filing to check these entries as follows:

You can view your entire return or just your 1040 form before you e-file ion TurboTax Online:

1. Sign in to your TurboTax account
2. Open or continue your return
3. Select Tax Tools from the menu (if you don't see this, select the menu icon in the upper-left corner)
4. With the Tax Tools menu open, you can then:
   • Preview your entire return: Select Print Center and then Print, save or preview this year's return (you may be asked to register or pay first)
   • View only your 1040 form: Select Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu

You can preview your return in the TurboTax CD/Download software by following these steps:

1. With your return open in TurboTax, select Preview from the File menu at the top. (If you don't see "Preview," open your return, not just the program).
2. In the pop-up window, choose the set of forms you wish to see (all official forms, specific forms, etc.) and select Preview.
3. Scroll down to view all the forms if you chose to preview multiple forms.

To enter your Form 1099-R for your RMD you should have:

Go to Federal Taxes,
Wages & Income
(I'll choose what I work on - if that screen comes up)
Retirement Plans & Social Security
IRA, 401(k), Pension Plan Withdrawals (1099-R)

OR  Use the "Tools" menu (if online version left side) and then "Search Topics" for "1099-R" which will take you to the same place.

When you get to the "Your 1099-R Entries" screen where you can add another 1099-R, use "continue" to keep going as there are additional interview questions after that screen in most cases. You can always return as shown above.

Click here for additional information on RMD's.