Retirement Savings Contribution Credit

[lizC]

Why has turbo tax been adding in my distributions for the past two years that were from an inherited IRA from a nonspousal beneficiary?  These distributions should not be included.  These RMD's are recorded in turbo tax as being from an inherited IRA and turbo also asks who the deceased was.

So my taxes for 2022 and 2021 had mistakes made when turbo tax used these distribution amounts to figure the Form 8880 for retirement savings contribution credit.  And was doing the same for this year.  I would not have noticed this if I had not gone to the irs Publication 590 and read the rules.

[BillM223]

The Retirement Savings Contribution Credit is triggered by contributions to a retirement vehicle, not by distributions.

So did you make contributions to these accounts?

[lizC]

You cant make contributions to an inherited IRA.  But u must take RMD's.  I did have contributions to a retirement plan, so I could enter that in in order to work on the Retirement Savings Contribution Credit.

[BillM223]

"I did have contributions to a retirement plan, so I could enter that in in order to work on the Retirement Savings Contribution Credit."

OK, so why do you think that the distributions from these accounts were used to calculate the credit?

[lizC]

Because Turbo tax gives you a screen where they include 2021, 2022, and 2023 boxes for distributions you received and 2021 and 2022 are filled in from previous years taxes and those get deducted from your eligible contributions for 2023.  turbo should not add these in because every year when i enter in distributions it also asks questions to figure out if it is from an inherited IRA and who it is from.  So therefore the system knows and per the IRS publication on the issue, the last rule stated for distributions that do not reduce your contributions is RMD's from an inherited IRA from a nonspousal beneficiary.  Turbo is setting me up for mistakes and has made the mistake for me the last two years.

[lizC]

I dont know why turbo is making this mistake , that is why i am asking the community.

[BillM223]

Did you see a screen like this?

This screen prefills in your distributions for 2023. 

BUT, if you read the Learn More pop up, you will see the list of distributions that do not reduce your contribution for the calculation of the credit. That is, you should not enter or zero out any distribution on this list.

Note item #9.

TurboTax may know that you had prior year distributions, but I doubt that the detailed information about things like an IRA inherited from a non-spousal beneficiary is part of that information. This is why this screen pops up to enable you to zero out "ineligible" distributions.

[lizC]

I did see that screen and the explanation for it, and that screen is where the program filled in 2021 and 2022 distributions i took but it did not fill in 2023.  And actually the program does ask you specific questions when you enter a distribution regarding why you received the distribution.  So it does know that it was an RMD from an inherited non spousal IRA.  I checked my form 8880 from 2022 and it did reduce my contribution by that RMD, which the rule you noted above says that it should not.

[dmertz]

During the entry of the code-4 Form 1099-Rs, make sure that you answer Yes when asked if you inherited the account from XXX, otherwise TurboTax will not treat it as a distribution from an inherited IRA and will include it on Form 8880.

Amounts shown for prior years are amounts you yourself have entered.  Delete them.

[lizC]

Yes I did answer yes it was from an inherited ira and then it asks if the person was a spouse and I said no and then it asks the persons first name and year of death I believe.  But its still deducted these amounts from my contributions which is wrong

[lizC]

and as far as the previous years , it did filter in those amounts automatically, I did not enter them in that screen shown above.

[dmertz]

Perhaps they were erroneous values transferred in from your previous year's tax return.  It might be a good idea to check your previous year's tax return for improper entries on Form 8880.