Inherited IRA - Reporting Non Deductible Contributions

[fanfare]

If your own IRA ( IRAs if married) do not have a prior years basis

you can pretend that the IRA is a regular IRA with a basis and TurboTax will calculate the taxable part.

You still have to file on paper with your own Form 8606 because 

1.  you are tricking Turbotax with fabricated 1099-Rs and/or overrides,  and
2. TurboTax will not put the correct names on Form 8606.

Of course, this assumes you know what to do with a prior years basis.

[dmertz]

Assuming that your wife had been the owner (not beneficiary of) of both IRAs inherited by your daughter, just like your wife's basis applied to all of her traditional IRAs in aggregate while she was alive, your wife's basis applies to these inherited IRAs in aggregate.  One is not permitted to allocate the basis to just one of these accounts in isolation for the purpose of Form 8606.  For the pro rata calculation on Form 8606, the combined value of these IRAs must be present on line 6 and the combined gross amount of the distributions from the two IRAs must be on line 7.  The resulting taxable amount should then be divided proportionately between the two Forms 1099-R so that the total taxable amount that TurboTax places in the two boxes 2a equals the total taxable amount shown on line 15c of the Form 8606.

[Romper]

How’s this sound?

Yes, my wife was the owner of both Traditional IRA’s that my daughter inherited.

Form 8606, Line 6 – Shows the sum of the values as of 12/31/23 for Custodians-1 (with non-deductible contributions) and Custodian-2 (with no non-deductible contributions).

Form 8606, Line 7 – Shows the sum of distributions from Custodians-1 and Custodian-2.

Form 8606, Line 12 – Non Taxable portion. The non taxable portion is applicable to Custodian-01 (with non-deductible contributions).

TTAx – Screen for Custodian-1 (with non-deductible contributions) “Tell Us A Little More About This Inherited IRA”. It asks for the taxable amount. I subtracted the non-taxable amount from 8606, Line 12 from the total distribution. That amount carries to TTax screen for 1099-R, Line 2a.

TTax – Screen for Custodian-2 (with no non-deductible contributions). I say No, she did not have non-taxable contributions. TTax screen for 1099-R, Line 2a shows the taxable amount is the same as the Gross Distribution.

[Romper]

Thankyou Fanfare...

The questions relate to inherited IRA's from my wife to our daughter.

[dmertz]

The nontaxable amount shown on line 12 applies to the distributions in aggregate, not to any one particular distribution.  While the amount technically applies proportionately to each distribution, because these distributions get combined everywhere on your daughter's tax return, it doesn't really matter which distribution's gross amount you reduce for the purpose of reporting the taxable amount.  While (because the basis in nondeductible traditional IRA contributions your daughter as beneficiary, not to any particular one of the inherited IRAs) it's technically incorrect to answer for one Form 1099-R that you wife had basis and for the other that your wife did not have basis, doing what you propose will produce the same taxable result as entering the taxable amounts correctly (proportionately).

[Romper]

Thanks...

The 8606, Line 6 values as of 12/31/23 were as follows:

Custodian-1 (with the non-deductible contributions) = 82% of the total.

Custodian-2 (without the non-deductible contributions) = 18% of the total.

In TTax, I applied 82% of the value of 8606, Line 12 to Custodian-1 and 18% of the value to Custodian-2.

As you stated, the amounts on 1040, IRA distributions and the Taxable amount were the same the way I did it.

I kind of like the way I did it as it makes it easier to understand.

Do you see a "nasty gram" from the IRS if I do the way I did it?

Thanks for sticking with me on this. I never expected it to be so complicated.

[dmertz]

Since your daughter will be mailing the tax return, the IRS will not see anything about how you divided up the taxable amount for entry into TurboTax.