Using 2021 TurboTax Deluxe for Windows (downloaded), I am unable to file electronically because I have a distribution from an inherited traditional IRA that had nondeductible contributions, which requires Form 8086.
I am disappointed this is not supported by TurboTax, at least according to TurboTax Help:
From TurboTax Help:
However, if any of these 3 situations apply to you:
then you'll have to download and print Form 8606, manually fill it out (instructions), and print and file your return, as you won't be able to e-file.
@hhubik This is a revision to my earlier post. I have been testing and racking my brain to find out why the 8606 was not generating in the return. I sent it to our CSI investigative team and here was the answer.
If any of these 3 situations apply to you:
Then you'll have to download and print Form 8606, manually fill it out (instructions), and print and file your return, as you won't be able to e-file.
I thought I found a workaround for this but unfortunately, it was in vain. I apologize for the misinformation earlier.
[ Edited 02/09/22|09:00 PM PST]
Did you inherit from your spouse or some other person? And what was done with the IRA if it was your spouse? Put with into your own IRA & what year (2021 or earlier) or left as a separate IRA?
OK. Then after you enter the data from the 1099-R (Make sure box 7 reads "4" and the IRA/SEP/... Box is checked) the next page is the "Did you inherit?" Check Yes and then it asks from whom, and then TT asks for first name and death year. Next page asks about non-deductible contributions. This is what you are looking for.
I tried all that. But even after doing that, TT does not generate Form 8606. In case it matters, this is a joint tax return where I am the "taxpayer" and my wife is the IRA inheritor.
It depends. To clarify, what version of Turbo Tax are you using? Online or Software?
2021 TurboTax Deluxe desktop software for Windows 10.
The version in the About TurboTax window is 021.0000.0421
To clarify, an 8606 is required by a taxpayer (in this case a decedent) on money he/she contributes to a traditional IRA that they do not deduct on their tax return. Since you are not making contributions yourself in the return, you will not report these on an 8606. The IRS should have a copy of the decedents 8606 when he/she made these non-deductible contributions. You still need to report the basis however. You still must report the basis on your return, and you use the IRA informational Worksheet to do this.
When you have an inherited IRA with basis you need the owner's last filed form 8606 to know what that basis is.
When you take your RMDs the basis will change ;you file a new Form 8606.
The names on the the top of Form 8606 are the owner's, and (in this case) wife's name as beneficiary.
When you have an IRA with basis you do the same but separately in your name only.
Your IRA and an inherited IRA must be kept separate.
If you inherit another IRA from someone else, that one must also be kept separate.
Last time I looked (past years), TurboTax can't handle two IRAs with your name.
You'll have to figure a workaround and file a paper tax return.
Maybe it's smarter this year.
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By using the CD/Download program and being careful, you can trick TurboTax into doing the basis calculations for you.
But you will have a tax return file that cannot be used for anything else.
Thanks for the response. Sadly, another complicating factor is that my wife received an RMD (required minimum distribution) in 2021 from this inherited traditional IRA. This RMD was reported to the IRS on a form 1099-R.
The section Who Must File on Page in Form 8606 instructions says that you must file an 8606 if "You received a distribution from an inherited traditional, SEP, or SIMPLE IRA that has a basis". This leads me to believe we must file an 8606, at least if we want to reduce the tax on the RMD by taking into account its non-taxable basis.
Do you agree that I need an 8606 or not? If you do, is there a way for TT generate it?
Thanks!
Yes. The instructions for 8606 clearly state that an 8606 must be included if you take RMD from an inherited IRA. I start work today at 12:30PM Pacific Standard time. I will address this ASAP after arriving at work to see why the 8606 did not generate after you reported an RMD distribution from an inherited IRA.
@hhubik This is a revision to my earlier post. I have been testing and racking my brain to find out why the 8606 was not generating in the return. I sent it to our CSI investigative team and here was the answer.
If any of these 3 situations apply to you:
Then you'll have to download and print Form 8606, manually fill it out (instructions), and print and file your return, as you won't be able to e-file.
I thought I found a workaround for this but unfortunately, it was in vain. I apologize for the misinformation earlier.
[ Edited 02/09/22|09:00 PM PST]
@DaveF1006 Thank you for trying. Is there any possibility of this getting fixed? I know there is at least one other person in exactly the same situation 😀
@hhubik Unfortunately, at this time, I don't have an update on when this will be resolved.
As I said above, By using the CD/Download program and being careful, you can trick TurboTax into doing the basis calculations for you, or do it yourself following instructions for Form 8606.
The prorated tax-free portion of the distribution depends on the prior basis and the year-end value of the inherited IRA.
Once you have these numbers you can get fillable PDF of the Form 8606 on IRS.gov.
You can enter the correct names "<owner> and <wife> BENE", and wife's SSN.
Include the results on Form 1040 Line 4a and 4b.
Obviously, you'll have to file a paper tax return via US Mail.
I have the same issue. Turbotax will not generate an 8606 when taking an RMD from an inherited IRA with nondeductible contributions. I encourage Turbotax to address/resolve this issue. I will not use the software in the future if this can not be resolved; sending paper returns to the IRS is a lost cause.
@DaveF1006 I am also in the situation where I took an RMD from an inherited IRA that has nondeductible contributions. I'd really like to e-file. Everything I read says I should not paper file. I paper filed two years ago and the IRS didn't process my return until August. The IRS is supposed to be even more backlogged now.
What do you think about the following "workaround"? The 1099-R I got has a box 2a 'Taxable amount'. It has the same amount as box. What about if I just fill out the 8606 by hand like I'm supposed to, then just pretend the final result is what's in box 2a? Then when TT asks if the distribution had nondeductible contributions, say no.
I've run through the screens in TT both ways, and the result is equivalent, i.e. I owe the same amount both ways.
Or how about a second option, which is just to enter a line under 'Miscellaneous income' that's the negative number of line 13 from form 8606 "nontaxable portion of all your distributions". Then put in the note field a one-line version of 8606, such as: "$200 Nontaxable portion of RMD. $2000 basis remains for next year".
The IRS should be ok with this, right? I'm not trying to get away with anything, and I'd be doing them a favor by e-filing, instead of filing by paper.
I said above that you have to file on paper but there is a way around it.
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Under these circumstances, TurboTax requires the user to calculate the taxable [amount] and enter enter [sic] the result in box 2a of TurboTax's 1099-R form instead of what is shown on the actual Form 1099-R. TurboTax uses this value to determine the amount on Form 1040 line 4b. (thanks to dmertz)
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E-file your return, don't file on paper.
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After it is ACCEPTED,
get Form 1040-X from IRS website and mail it in with your Form(s) 8606. which you can also get in fillable PDF.
Note: since you are not changing any dollar amounts on your tax return, you can leave all the lines 1-23 on 1040-X EMPTY.
The names on 8606 should be "<owner> and <your name> BENE" or Beneficiary if it fits, and your SSN
Part III Explanation: "didn't include 8606 with 1040".
In a few months to a year, you will get an acknowledgement from the IRS.
Note: you'll have to file 1040-X on paper, so this won't use up your one 1040-X e-File.
@fanfare thanks for responding. Regarding what you said:
"Under these circumstances, TurboTax requires the user to calculate the taxable [amount] and enter enter [sic] the result in box 2a of TurboTax's 1099-R form instead of what is shown on the actual Form 1099-R."
Where does it say that? Are there instructions somewhere you can refer me to? Thanks again.
This is not advocated by TurboTax.
It is a workaround to get the proper amounts to appear on Form 1040.
Thanks for describing your method of e-filing followed by a lighter paper superseding/amended return. Like many users, I want to e-file and for many years I had to paper file by printing large amount of forms and getting long processing times by the IRS. I don't understand why this requirement has been pending for at least 5 years and not addressed by Turbotax, as they already have the capability to generate a f8606 for the non inherited IRAs.
QUESTION: I read in the IRS FAQs about the f1040x (https://www.irs.gov/filing/amended-return-freque[product key removed]ions) that you need to resubmit all forms, but you said we could leave the 1040 blank. Do I misunderstand their statement?:
"What forms are required with an electronically filed Amended Return?
Both the electronic Form 1040 and 1040-SR Amended Returns (with attached Form 1040-X) will require submission of ALL necessary forms and schedules as if it were the Original 1040 or 1040-SR submission, even though some forms may have no adjustments."
A) you are filing a paper 1040-X not electronically.
B) the 1040-X is not blank, only lines 1-23 are EMPTY, as no dollar amounts are changing.
see Instructions for Form 1040-X if you have doubts.
I have decided to switch to Tax Act because of this. They seem to support it better than TurboTax. I e-filed with TaxAct yesterday. So my 24 straight years as a TurboTax customer have come to an end.
" They seem to support it better than TurboTax. "
TaxACT is essentially the same as TurboTax.
It won't support two "Taxpayer" IRAs with a basis.
The only useful advantage it has is that it lets you edit the Form 8606 Name line when you try to generate a paper copy of your second Form 8606.
That can be printed and attached to Form 1040-X, as described in the above solution.