Form 8606, Nondeductible - How to make work?

[MNOP]

I have a personal traditional IRA with nondeductible basis - below the age to require RMD's - no contributions in 2021, no distributions.

I have an Inherited IRA with NO nondeductible basis - from 2005, non-spouse, multiple beneficiaries - Must take RMD's from this Inherited IRA, have done so and have entered 1099-R.

Form 8606 is not automatically being generated. Why? It worked last tax year.

Further and possibly related, when entering 1099-R - the question about 12/31/2021 year end "value" of IRA's never came up (as in past years). I found the worksheet and entered the value - which gets carried into Form 8606. And last years nondeductible basis is shown.

I found the Community question - "Where do I find Form 8606?" marked solved 6 days ago.

As written in the response, none of the exceptions apply. The closest is the first -"You received a distribution from an inherited traditional IRA that had nondeductible contributions" - BUT my inherited IRA has NO nondeductible. So, based on that response, Form 8606 should be auto generated. It is not.

In the answer to "Where do I find Form 8606?" - below the exceptions, there is a section, how to trigger Form 8606 - I have answered "YES" to.... "When you reach the screen Any nondeductible contributions to your IRA? answer Yes, then continue. We'll generate and fill out the 8606 behind the scenes."

But no Form 8606.

I spent nearly 5 hours on the phone with a "tax expert" (Sat, 5 Mar) (today 10 Mar). The end result seemed to be I had to wait for an update scheduled for 31 Mar. Yet today, I found a "Federal Individual Forms Avalability" list (PC Windows download) which shows "Form 8606, Nondeductible" as "available" for both Print and E-File.  And as of today, still cannot get Form 8606.

I've tried to use "Forms" - "Open Forms" - Form 8606 -- I can not directly complete- it will not accept numbers.

What is my path forward? How do I get Form 8606 auto generated? Is there an update scheduled?

[fanfare]

8606 if not filed if you did not do anything.

ie no distribution conversion nor contribution that you want to be non-deductible.

Always retain a paper copy of the last one you filed which might be a long time ago.

[MNOP]

I appreciate the reply, but I'm not sure I see how your response helps me. It is my understanding that Form 8606 represents a summary of all traditional IRA activity. Between, my two IRA's, there was a withdrawal (from inherited IRA) and there is nondeductible basis (from my traditional IRA, but no actual 2021 contribution) so, in total between the two, I'm thinking that the withdrawal has to be reduced since it has basis in it. This is the way it has worked for the last couple of years. Why the change for tax year 2021? In a fast peruse of Form 8606 instructions, I did not see anything that would suggest a change in approach. So why won't TTX generate F8606 automatically like in prior years? I'm confused and frustrated.

[fanfare · Accepted solution]

"I have an Inherited IRA with NO nondeductible basis "

'

You must understand, Inherited IRAs and your own IRAs must be treated completely separately.

If you had a basis in the Inherited IRA and you took money from your own IRA with basis or made a non-deductible contribution to your own IRA,

you would have to file two separate 8606 forms.

Since the only activity was in the IRA with no basis, Form 8606 is not filed.

[Still_Another_Bob]

I, too, had what sounds like the same problem you and a few others have had:  Distributions from a traditional IRA to which we have made non-deductible contributions in the past, but no contributions in the past few years since we retired (and none in 2021), and for which we have been filing Forms 8606 each year since we made the non-deductible contributions.  No problems in past years when we have been filing our taxes, but this year TurboTax did not prompt for the 2021 year-end fair market value or basis for prior year.  I, too, spent several hours on the phone with two different support people trying everything we can think of to force TurboTax to ask for these two pieces of information, but with no luck.

I noticed your comment about being told to wait for a software update scheduled for March 31.  Since for me it was now March 31, 2022, I decided to give TurboTax one more try.  I deleted all of the "Wages" information (1099-INTs, 1099-Rs, 1099-DIVs, etc) and re-entered it.  This time TurboTax did prompt me for the fair market value and basis and the associated Form 8606 now looks reasonable.  (I still need to check the entire return before I'll pronounce it "correct.")

Was there truly a software update on March 31?  Or did I just happen to clear something else out that was causing the problem when I deleted all of the "Wages" information?  I guess we'll never know.  Anyway, have you tried it again?  Maybe it will work now.

[fanfare]

@MNOP 

You are confused.

In prior years, TurboTax has always left out Form 8606 when not needed, as per IRS instructions.

[Still_Another_Bob]

Correct, but the Form 8606 has two purposes: (1) to keep the calculated basis in your IRA up to date when you make non-deductible contributions, and (2) to calculate the taxable portion of a distribution and recalculate the basis when you later take a distribution from the IRA to which you made non-deductible contributions sometime in the past.

Thus, you don't need to make an IRA contribution in the most recent tax year to still need the Form 8606.  You just have to take a distribution from an IRA to which you made non-deductible contributions sometime in the past.  That is our situation.  Since we retired, we have not been making contributions to our IRA, but we have been taking distributions from a regular IRA to which we made past non-deductible contributions.  In that case, we still need to file the Form 8606.  Otherwise, (1) we are taxed on the full amount of the distribution, which is not correct, and (2) the basis in the IRA is not recalculated, which messes up tax calculations for distributions in subsequent years.  And TurboTax can't prepare the Form 8606 correctly unless it asks for the end of year fair market value and the most recent calculated basis of the IRA.

This year, when filing our 2021 return, TurboTax should have asked us if we had ever made non-deductible contributions when we entered the 1099-R (or at least somewhere in the process flow) and then gone on to ask for fair market value and the basis, but it didn't and it didn't generate a Form 8606.  It always has in the past.  In working with TurboTax Customer Service, we were finally able to get TurboTax to prompt for the basis, but never could get it to ask for the end of year fair market value.  At that point, TurboTax finally did generate the Form 8606, but Line 6, where end of year fair market value should be, was blank.  Thus, its calculations of both the taxable portion of the distribution and the updated basis were incorrect.  What's worse, TurboTax pronounced everything accurate when it did its final check of the return even though the Form 8606 was missing a critical piece of information.

[fanfare]

TurboTax is very buggy, and getting more so.

[Still_Another_Bob]

I agree.  This was especially frustrating because it slipped past me until after I had paid for federal and state and was reviewing the PDF returns just before filing.

The two customer service reps I spent more than 4 hours on the phone with were very patient and tried everything they could think of, but nothing worked.  That's when I noticed MNOP's question in the Community.  His or her problem sounded enough like mine that it was worth reading and his comment about being told to wait for a software update scheduled for March 31 caught my eye.  Since it was March 31, I thought it wouldn't hurt to try again, so I deleted my 1099's and reentered even though I had already tried this before with the two customer service reps.  This time it worked!  Was there really a software update that fixed the problem, or did I just happen to delete something that I hadn't before and reentering it in maybe a different sequence "fixed" the problem?  I guess I'll never know.

[fanfare]

sometimes you have to delete the 1099-r and re-enter it to make TurboTax work correctly.