FEEDBACK: need support for distribution from inherited traditional IRA that had nondeductible contributions (Form 8086)

[hhubik]

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:

1. You received a distribution from an inherited traditional IRA that had nondeductible contributions
2. You transferred an inherited plan account to a Roth IRA
3. You received a distribution from an inherited Roth IRA that was not a qualified distribution

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.

[cr-stagg]

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?

[hhubik]

The IRA was inherited in 2021 from a parent (not a spouse).

[cr-stagg]

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.

[hhubik]

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.

[DaveF1006]

It depends. To clarify, what version of Turbo Tax are you using? Online or Software?

[hhubik]

@DaveF1006 

2021 TurboTax Deluxe desktop software for Windows 10.

The version in the About TurboTax window is 021.0000.0421

[DaveF1006]

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.

1. Go to the forms mode in your Turbo Tax software.
2. In the left pane of your return, select open form.
3. in the Box where it says to type a form name, type in IRA Information Worksheet. Select this from the dropdown
4. Go to Part 3-line 12 and enter the basis for 2020 and earlier years if there isn't an amount listed there already. Make sure you enter these under the spouse.
5. This IRA Worksheet will be used to track the basis of your non-deductible contributions made in past years.

[fanfare]

@hhubik 

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.

-- 

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.

[hhubik]

@DaveF1006 

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!

[DaveF1006]

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.

[DaveF1006 · Accepted solution]

@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:

1. You received a distribution from an inherited traditional IRA that had nondeductible contributions
2. You transferred an inherited plan account to a Roth IRA
3. You received a distribution from an inherited Roth IRA that was not a qualified distribution

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]

[hhubik]

@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 😀

[DaveF1006]

@hhubik Unfortunately, at this time, I don't have an update on when this will be resolved. 

[fanfare]

@hhubik 

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.