2020 Form 8606 IRA Basis Calculation Error?

Forum|Forum|5 years ago
May 13, 2021
6 replies
23 views

I have a traditional IRA with a basis that has been tracked by Form 8606 in TurboTax for years. Even though there are no RMD’s in 2020, and I made no withdrawals from the traditional IRA with a basis, Form 8906 calculates that my carried-over basis of $5,585 (Line 2) is reduced to $272 (Line 14). How can this be correct? How is $272 calculated? I did make withdrawals from other IRAs which have no basis during 2020 totaling $16,501. Can anyone explain the value $272 in Line 14?

fanfare

Level 15

As far as the Tax Code goes, you have one IRA and you have a basis in your IRA.

That's why you enter the total year end value of ALL your IRA accounts at tax time.

Line 14 is the updated basis that you will enter on line 2 next time

DFHAuthor

Level 4

@fanfare, I understand that the IRS lumps all of one's IRAs together when it comes to satisfying RMDs. However, on p.14 of the 2020 version of Publication 590-B, is the following statement: "If your IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income." [Emphasis added] My IRA distributions in 2020 were all "otherwise taxable income," namely, funds untaxed before they were deposited plus interest earned thereon. Therefore, even if I had made a withdrawal from the IRA with a basis, that basis should not have been effected.

I have now completed Form 8606 by hand, following the instructions carefully. The amount I compute on Line 14 is $5,585, which is unchanged from the 2019 basis, not the reduced amount computed by TurboTax Deluxe Desktop 2020.