My husband has both a traditional IRA (with some nondeductible contributions) and a non-spouse inherited IRA (with no nondeductible contributions). He withdrew money from both accounts in 2019 and 2020.
TurboTax, for 2019, included only his traditional IRA withdrawal on form 8606.
TurboTax, for 2020, now includes the sum of both withdrawals on form 8606.
I can't find any IRS information about a tax law change that might explain the different treatment for 2019 and 2020. Is TurboTax correctly handling this in both years, or do I likely have a mistake somewhere?
I noticed as a workaround of the Inherited 1099-R is edited and the question that asks of the inherited IRA had a non-deductible basis, answer "yes" , then check the "no" answer again and the 8606 then removes the inherited IRA amount from the 8606 line 7. (I don't know if that works in all cases).
"TurboTax, for 2020, now includes the sum of both withdrawals on form 8606."
That's wrong.
That means he did not tell TurboTax one of them was inherited. OR TurboTax has a bug.
Since inherited IRA has no basis, Form 8606 does not get involved.
Thanks!
I deleted his 1099R for the inherited IRA withdrawal, and re-entered it to ensure that it is correctly marked as an inherited IRA, which it appears to be. I believe that an inherited IRA can have a basis if the original owner made nondeductible contributions; in our case, there were no nondeductible contributions, so no basis.
I spent two hours on the phone with TT support, including with their Tax Advice group, and no resolution. They need to do more research!
Even IRS 590-B for 2019 (no 2020 yet available) says you cannot use one 8606 for two withdrawals, both of which have a basis. You have to use two 8606s. I am still hopeful it's a TT bug.
Thanks again for your help and quick response.
your inherited IRA does not have a basis, you said, so there is no issue.
the form 8606 should reflect your own IRAs only.
TurboTax support should be able to tell you that immediately.
Inherited IRA's can indeed have a basis. You would need the last filed 8606 form for the inherited IRA to get the line 14 amount to enter in the 1099-R interview.
TurboTax ONLY supports 8606 forms for the taxpayer and spouse. Inherited IRA basis is required by the tax law to be kept separate and that is not supported by TurboTax. You would have to manually fill out a 8606 in the name of the deceased with you as benificuary and attach that to a mailed tax return - it cannot be e-filed.
Also see this TurboTax FAQ:
https://ttlc.intuit.com/community/accessing/help/where-do-i-find-form-8606/00/25713
We'll automatically generate and fill out Form 8606 (Nondeductible IRAs) if you reported any of these on your tax return:
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.
After another 90 minutes on the phone with TurboTax Support, they agreed that the inherited IRA withdrawal should NOT be included on 8606. They walked me through an odd process to reset some values, using step-by-step, on the 1099 for this withdrawal, and it dropped off the form. Thanks to all who contributed.
@mlgillette wrote:
After another 90 minutes on the phone with TurboTax Support, they agreed that the inherited IRA withdrawal should NOT be included on 8606. They walked me through an odd process to reset some values, using step-by-step, on the 1099 for this withdrawal, and it dropped off the form. Thanks to all who contributed.
As I said above, it is not included on *your* 8606. If the inherited IRA has it's own non-deductible basis then it must be reported on a separate 8606 for the inherited IRA.
If the inherited IRA has no non-deductible contributions at all and no basis the it is not reported on ANY 8606 at all.
The basis on an inherited IRA cannot be combined with your own IRA basis.
IRS pub 590B
quote
IRA with basis.
If you inherit a traditional IRA from a person who had a basis in the IRA because of nondeductible contributions, that basis remains with the IRA. Unless you are the decedent's spouse and choose to treat the IRA as your own, you can't combine this basis with any basis you have in your own traditional IRA(s) or any basis in traditional IRA(s) you inherited from other decedents. If you take distributions from both an inherited IRA and your IRA, and each has basis, you must complete separate Forms 8606 to determine the taxable and nontaxable portions of those distributions.
Yes, I quoted that exact paragraph from 590B to the agents yesterday. I kept telling them that the inherited IRA never had any nondeductible contributions, but honestly, no one I spoke to seemed to understand these complexities. But it finally got resolved, and isn't on my husband's 8606 any longer. So, all good. Thanks again for your insights.
I think I see what you were alluding to. Inherited IRA 8606's cannot be combined with your own 8606 but TurboTax seems to be adding the gross (box 1) amount form an inherited IRA with a code 4 improperly to your own 8606 form line 7 - it should not.
That appears to be a bug.
@dmertz ?
I concur, TurboTax is including the distribution from the inherited IRA on the beneficiary's Form 8606, which is incorrect.
I also noticed that TurboTax is no longer presenting the option for indicating that an entire traditional IRA distribution was converted to Roth. It's now necessary for some reason to indicate that a combination was done, then enter the amount that was conversed.
The developers have really mangled the 1099-R stuff this year, more than usual.
I noticed as a workaround of the Inherited 1099-R is edited and the question that asks of the inherited IRA had a non-deductible basis, answer "yes" , then check the "no" answer again and the 8606 then removes the inherited IRA amount from the 8606 line 7. (I don't know if that works in all cases).
This bug (including code-4 Form 1099-R on beneficiary's Form 8606) was in R1 of 2020 TurboTax but was not in the final version of 2019 TurboTax.
Yes, I see that behavior. Bizarre. There is something going on behind the scenes that is not reflected on TurboTax's 1099-R form. I've noticed several instances of that this year with Forms 1099-R.
Yes, this is the workaround that TT Support finally led me through, using step-by-step, on the phone, and it removed the improper entry from the 8606.
Truth is, initially when TT added the inherited IRA distribution on line 7, it implied to me that I should also include the full balance of that inherited IRA on line 6, along with my husband's traditional IRA. Doing so made the nontaxable percent on line 10 even smaller, of course. I am sorry we ever made nondeductible contributions to our traditional IRAs; the tax benefit each year is nearly negligible, and I spend more time on this form that the entire rest of our return combined.
The hard part about From 8606 is gaining the initial understanding of the form. Once you have that, it's relatively easy to deal with, except when the TurboTax developers mess up TurboTax's handling of this form (which tends to be all too often, unfortunately).
I totally agree! Last year was the first time I had to deal with withdrawals from an IRA with non-deductible contributions, but I thought I understood it well then. It was easy to see that 2019 TT and 2020 TT were treating it differently.
And... every time I re-open our 2020 return in TT, as I did just now, the 8606 bug that we've been talking about comes back!!! Even after a TT update yesterday? Fortunately, I know how to get rid of the entry using step-by-step, but goodness, this seems like a correctable TT error.
I have encountered the same bug. I can correct it by answering the questions again, but each time I open TurboTax it comes back. Tech support tried to tell me it was because I had the latest OS (Security) updates on my Mac and closed the ticket! This made no sense since the CPA was able to reproduce the problem on her Windows system. I called back and opened another ticket. My concern is that not everyone will see this error. It makes a BIG difference to my taxes and gives me a refund when I actually owe more money. Other people might not realize what is happening and then go ahead and file. I hope they fix this soon...
I’m having the same problem as well. Tech support is totally clueless and refuses to admit it’s a problem. I find Intuit’s attitude about a clear bug in the software to be very disappointing.
I received a call from TurboTax (CPA) support this morning. She said that Tech support does have an open ticket for this, CSI #INV11645. They are still working on the solution.
It appears the fix was included in the 3/3/2021 updates. I installed the updates and the issue no longer occurs. I tried opening TurboTax 3 times and all figures remained correct for my IRA's.
Finally! That's great to hear!
Between this bug, and the multiple rejections and resubmissions (without making any corrections) of my returns, it's the worst performance I have ever seen from TurboTax. And I've used their software since at least the early 1990s.
I will definitely look for a different product next year...
This was a known bug with TT and inherited IRAs this year. I am happy to report that this bug appears to have been fixed! I am trying to get the word out by posting this on all the various threads inquiring about Form 8606 and Inherited IRAs. The issue with the Inherited IRA distributions incorrectly showing on Form 8606 appears to have been resolved as of 3/5/2021. Make sure you download the updates from 3/4/2021. Recently, there have been related reports on the support forum from many people saying they were getting error messages about Form 8606 when trying to file even if they didn't have an Inherited IRA. I suspect Turbo Tax put a hold on anyone filing an 8606 until they got the Inherited IRA issue resolved. In any event, I was able to e-file successfully and the figures from the Inherited IRA distribution were correctly populated on the return.