Retirement Savings Contribution Credit

Forum|Forum|2 years ago
March 8, 2024
3 replies
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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

Level 15

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

So did you make contributions to these accounts?

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lizCAuthor

Level 3

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

Level 15

"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?

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dmertz

Level 15

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.

lizCAuthor

Level 3

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

Baking617

Level 2

I've had this same issue. For 2021 and 2022 tax years I was able to fix it by switching to form view, selecting form 8880, and deleting all the erroneous entries in the "Line 4 Smart Worksheet." But for 2023, it carried over the distribution from form 1099-R directly and wouldn't let me delete it. After much gnashing of teeth and pulling of hair, I finally figured out I could enter an offsetting negative number on another line in the "Line 4 Smart Worksheet" to zero out the entry for line 4.

I hope this helps someone else.

To be clear, this applies to someone taking distributions from an IRA inherited from someone other than your spouse. You also need to be under certain income limits, making contributions to your and/or your spouse's IRAs, 401(k), or 503(b) accounts, and not taking distributions from those accounts.