My early thirties niece made a Roth contribution in 2023. Her father passed away in 2023 and she received a distribution from his qualified retirement plan as beneficiary. TT shows she does not qualify for the Credit because of this distribution. Typically she does not have taxable income however, because of the retirement distribution she does have taxable income for 2023. The instructions on Form 8880 say that distributions from an inherited IRA by a nonspousal beneficiary would not count. Did she miss out on the credit because she did not move the retirement distribution from her dad's plan through an inherited IRA account? Thanks for any clarification.
I do see TurboTax mishandling this when the distribution is from an inherited qualified retirement plan. Definitely a bug. Interestingly, TurboTax also fails to ask the necessary questions to determine if the beneficiary is a non-spouse beneficiary. I'm surprised that I have not seen this issue come up before. I just tested 2015 TurboTax and the bug exists there as well, so no telling how long this bug has been present.
It appears that you can work around this bug in the Retirement Savings Contributions Credit section by replacing the erroneous amount present in the 2023 box with a zero.
A distribution paid to a beneficiary of an inherited traditional IRA must be reported with code 4 in box 7 of the From 1099-R, no other code is permitted. Make sure that during the entry of the code-4 From 1099-R you indicate that the distribution was from an inherited IRA made to a non-spouse beneficiary.
Note that this tax credit is not available to full-time students and that it cannot be used to reduce income tax on Form 1040 line 22 below zero.
Thanks for the answer. We do have it marked with a 4 in box 7. And she has $21,615 for taxable income. I am wondering if it is because the distribution was from the qualified plan and never was moved into an inherited IRA. I have not been able to find something definitive though.
I do see TurboTax mishandling this when the distribution is from an inherited qualified retirement plan. Definitely a bug. Interestingly, TurboTax also fails to ask the necessary questions to determine if the beneficiary is a non-spouse beneficiary. I'm surprised that I have not seen this issue come up before. I just tested 2015 TurboTax and the bug exists there as well, so no telling how long this bug has been present.
It appears that you can work around this bug in the Retirement Savings Contributions Credit section by replacing the erroneous amount present in the 2023 box with a zero.