I have a traditional IRA with a basis that has been tracked by Form 8606 in TurboTax for years. Even though there are no RMD’s in 2020, and I made no withdrawals from the traditional IRA with a basis, Form 8906 calculates that my carried-over basis of $5,585 (Line 2) is reduced to $272 (Line 14). How can this be correct? How is $272 calculated? I did make withdrawals from other IRAs which have no basis during 2020 totaling $16,501. Can anyone explain the value $272 in Line 14?
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As far as the Tax Code goes, you have one IRA and you have a basis in your IRA.
That's why you enter the total year end value of ALL your IRA accounts at tax time.
Line 14 is the updated basis that you will enter on line 2 next time
@fanfare, I understand that the IRS lumps all of one's IRAs together when it comes to satisfying RMDs. However, on p.14 of the 2020 version of Publication 590-B, is the following statement: "If your IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income." [Emphasis added] My IRA distributions in 2020 were all "otherwise taxable income," namely, funds untaxed before they were deposited plus interest earned thereon. Therefore, even if I had made a withdrawal from the IRA with a basis, that basis should not have been effected.
I have now completed Form 8606 by hand, following the instructions carefully. The amount I compute on Line 14 is $5,585, which is unchanged from the 2019 basis, not the reduced amount computed by TurboTax Deluxe Desktop 2020.
If you fill out Form 8606 correctly, it's not possible to end up with the same basis, unless line 10 is zero.
What is your fraction on line 10? did you carry it to three decimal places? (six recommended).
After that Lines 11-14 will give you your new basis.
@fanfare, I didn't fill out form 8606 carefully enough before my previous post. After corrections, Line 5 is $5,585, Line 7 is $5,313, Line 10 is 0.016991, and Line 13 shows a $90 reduction in basis, so that Line 14 is $5,495. Line 15c is $5,223.
However, after going through the TurboTax step-by-step again, correcting answering the RMD questions to reflect that none was required in 2020, in TurboTax's Form 8606, Line 2, 3, 14 are all $5,585, and 15b and 15c are zero. Line 15c is correct because the amount withdrawn (Line 7) went to QCDs.
I have two questions:
1) Are the differences between TurboTax's and my manual Form 8606 values the sole result of TurboTax having been told that the withdrawals went to QDCs? Form 8606 doesn't have a line to indicate that.
The statement on p. 14 of Pub 590-B, "If your IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income," is the last sentence under the heading Qualified charitable distributions. 2) Is that the only situation wherein withdrawals from traditional IRAs with basis do not reduce the basis?
ask @dmertz
I'm not qualified to comment on that part.
@dmertz , can you respond to the last two questions I asked fanfare? You've helped me before, and I appreciated it.
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