Inherited non qualified annuity not being handled correctly by turbo tax software

[BayAreaBuff]

I received  a 1099-R for an inherited non qualified annuity, which correctly shows the gross distribution, has a taxable amount and fed / state tax was withheld. the IRA box , correctly, is not checked 

After entering all the information, turbo tax double checks that the IRA box is not checked, but the following questions start referring to it as an inherited IRA  and asking about RMDs , birth dates of the parent before or after 1950.  why is it doing that? seems like a software problem? There is no RMD on a non qualified annuity only the tax on the deferred earnings, which the 1099-R details

Can somebody advise ? thanks

[dmertz · Accepted solution]

Does this Form 1099-R have code D in box 7 in addition to the code 4?  It should.  If code D is not included in box 7, TurboTax might be inferring that the distribution is from a qualified plan.

Regardless, TurboTax is only asking these questions to determine how much is ineligible for rollover.  Since such a distribution is entirely ineligible for rollover, just indicate that the entire amount is RMD (meaning ineligible for rollover).

[BayAreaBuff]

Thanks for the response.

Yes, the 1099-R has 4D in box 7, and I entered just that way.

There are 2 amounts, the total distribution in box 1 and the amount that is taxable in box 2A. I'll have to run back through the screens and see where it asks about the RMD, but which amount is it looking for?  

I think I understand your point that if the entire amount is marked as a RMD then turbotax adds that income , but then I should use Box 2 

That may make the numbers work , but I'm still concerned when it's filed it's going to refer to it as a Qualified Annuity and create issues with the IRS in an audit.

So, I'm still left with the feeling that your suggestion is a work around to a poorly constructed software design that should be rewritten to have a non qualified IRA by pass all of these RMD  and DOB of the original owner questions. 

[dmertz]

Other than failing to select code 4 for one of the box-7 selections and code D for the other, I don't know of any way you can cause TurboTax to treat the taxable amount of this Form 1099-R as anything other than the amount in box 2a.  The amount that you specify as RMD doesn't matter.  the date of birth of the decedent doesn't matter.  Just confirm that the amount on line 5a of Form 1040 includes the gross amount from box 1 of the Form 1099-R and line 5b includes the taxable amount from box 2a.

[DorisJ]

I agree the software needs to be changed. Non-qualified annuities should have nothing to do with RMD questions. It needs fixed!!!

[iphone1]

Yes.  I'm seeing the exact same issue in turbo tax.  It's asking the RMD questions even though I've entered 4 and D for box 7.  This really should be corrected in the software.

[roxgentile]

One year later this remains unfixed. The result is you can't file electronically. Click "Fix Federal Return" and end up in the RMD question loop where it asks you if this is a 403b or "other qualified retirement account." You just end up back at the screen saying you have to fix your federal return, and then have to print your return and file by mail. This is a bug.

[MarilynG1]

Yes, this is an anomaly in TurboTax that is related to how the IRS treats retirement income reported on a 1099-R, which is that all retirement income is subject to RMD, and everything reported on a 1099-R is retirement income. 

You were correct to choose 'another type of qualified retirement plan' and enter the total distribution amount from Box 1 (or the taxable amount from Box 2a), as the RMD amount in order to complete your entry.  The funds are taxed the same way in either circumstance, and the 4D Code indicates that the amount is ineligible for rollover.

Here's detailed info from the IRS on Pensions and Annuities and more on Form 1099-R.

@roxgentile 

[dmertz]

"You were correct to choose 'another type of qualified retirement plan' and enter the total distribution amount from Box 1 (or the taxable amount from Box 2a), as the RMD amount in order to complete your entry."

Unfortunately, despite the correct taxable result on the tax return, TurboTax still flags this as an error because neither answer is correct and Smart Check know that a Form 1099-R with code D should not be marked as being a distribution from a qualified plan (which is what happens when another type of qualified retirement plan is selected).  The only options presently available are to make the correction in forms mode of the download version of TurboTax or print an mail the tax return.

[BayAreaBuff]

I'm disappointed to see what I flagged last year as a clear problem continues and that no one in Turbo tax acknowledged or fixed the problem. Have used Turbo Tax for many years and am losing confidence in using the software. My situation was a "one off" situation caused by inheriting the annuity after my mother's death. I followed the recommendations for a work around at the time from a "turbo tax expert" earlier in this string.  So I filed my return assuming the final reporting is correct despite the software issue. If it ever gets challenged, then I will fully expect Turbo tax will deal with the issue and pay any penalties 

[BSCOTTWHILL]

Had this same issue.  The "glitch" seems to be in the date question.  We tried it using the after and it stopped asking anything else about the annuity.  My wife had several and I had to delete and reenter some, but they all took.

Line 5A / 5B shows the correct totals on the 1040.  Not sure if this will cause other issues but it will let me e-file now.

[sdaffner]

Try eliminating "7" and inputting only "D" for a nonqualified annuity as a single entry. "7" is a normal distribution and the software appears to think that means retirement account which drives it to ask the retirement account questions and 403(b) / RMD questions. That worked for me and let me e-file and break the endless loop.

[timsonrgarrett]

I cannot get past this point in TurboTax.  I have an inherited annuity distribution that is taxable (I am suppose to disperse this money over a five year period), but when I enter type of account as other, or I chose no entry, it keeps coming back for review.  If I select no entry, it still comes back at me.  I tried imputing that the distribution as all a RMD, but it tells me that it is not an RMD.  In Box 7 on 1099-R, 4D self populates when I import the document from Thrivent.

[timsonrgarrett]

I did what you said, entered the entire year's distribution as the RMD (box 1) and box 7, 4D are checked. I also check "other type of account".  TurboTax came back and said that the distribution was not an RMD, so around and around I go.  This is a non-qualified inherited annuity, from which I too out a sum for 2024's distribution, using the 5 year rule.  Everything worked last year in TurboTax.

[timsonrgarrett]

Okay, here is what worked for me:  I changed the box 7 codes from 4D to 7D, even though the 1099-R I received from Thrivent had box 7 codes as 4D.  It went through now without any further review prompts.