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Form 8606 must include Inherited IRA withdrawals?

Forum|Forum|5 years ago
January 23, 2021
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My husband has both a traditional IRA (with some nondeductible contributions) and a non-spouse inherited IRA (with no nondeductible contributions). He withdrew money from both accounts in 2019 and 2020.

TurboTax, for 2019, included only his traditional IRA withdrawal on form 8606.

TurboTax, for 2020, now includes the sum of both withdrawals on form 8606.

I can't find any IRS information about a tax law change that might explain the different treatment for 2019 and 2020. Is TurboTax correctly handling this in both years, or do I likely have a mistake somewhere?

Best answer by macuser_22

I concur, TurboTax is including the distribution from the inherited IRA on the beneficiary's Form 8606, which is incorrect.

I also noticed that TurboTax is no longer presenting the option for indicating that an entire traditional IRA distribution was converted to Roth. It's now necessary for some reason to indicate that a combination was done, then enter the amount that was conversed.

The developers have really mangled the 1099-R stuff this year, more than usual.

I noticed as a workaround of the Inherited 1099-R is edited and the question that asks of the inherited IRA had a non-deductible basis, answer "yes" , then check the "no" answer again and the 8606 then removes the inherited IRA amount from the 8606 line 7. (I don't know if that works in all cases).

fanfare

Employee

"TurboTax, for 2020, now includes the sum of both withdrawals on form 8606."

That's wrong.

That means he did not tell TurboTax one of them was inherited. OR TurboTax has a bug.

Since inherited IRA has no basis, Form 8606 does not get involved.

M

mlgilletteAuthor

Thanks!

I deleted his 1099R for the inherited IRA withdrawal, and re-entered it to ensure that it is correctly marked as an inherited IRA, which it appears to be. I believe that an inherited IRA can have a basis if the original owner made nondeductible contributions; in our case, there were no nondeductible contributions, so no basis.

I spent two hours on the phone with TT support, including with their Tax Advice group, and no resolution. They need to do more research!

Even IRS 590-B for 2019 (no 2020 yet available) says you cannot use one 8606 for two withdrawals, both of which have a basis. You have to use two 8606s. I am still hopeful it's a TT bug.

Thanks again for your help and quick response.

fanfare

Employee

your inherited IRA does not have a basis, you said, so there is no issue.

the form 8606 should reflect your own IRAs only.

TurboTax support should be able to tell you that immediately.

S

SJGTX

This was a known bug with TT and inherited IRAs this year. I am happy to report that this bug appears to have been fixed! I am trying to get the word out by posting this on all the various threads inquiring about Form 8606 and Inherited IRAs. The issue with the Inherited IRA distributions incorrectly showing on Form 8606 appears to have been resolved as of 3/5/2021. Make sure you download the updates from 3/4/2021. Recently, there have been related reports on the support forum from many people saying they were getting error messages about Form 8606 when trying to file even if they didn't have an Inherited IRA. I suspect Turbo Tax put a hold on anyone filing an 8606 until they got the Inherited IRA issue resolved. In any event, I was able to e-file successfully and the figures from the Inherited IRA distribution were correctly populated on the return.