Is TurboTax 2023 broken for Form 1099-R when checking the IRA/SEP/SIMPLE box?

Forum|Forum|2 years ago
February 25, 2024
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In previous years this worked fine, but for some reason in 2023, TurboTax does not want to count my distribution from an inherited IRA as taxable (which it should be). TurboTax was failing on the 1099-R data that I imported from Vanguard, but I noticed if I uncheck the IRA/SEP/SIMPLE box (which is supposed to be checked), the distribution is taxed properly. It turns out this issue is easy to reproduce. I can add a new 1099-R, and put in the amount of $1000 for line 1 and line 2a, at which point my refund goes down because the distribution is taxable. But as soon as I check the IRA/SEP/SIMPLE box (which should be the case for a distribution from an inherited IRA), my refund goes back up to its original value because the distribution is considered nontaxable (which is incorrect). What am I missing? I haven't had this problem previously.

Best answer by dmertz

On the page that follows, you must answer Yes when asked if you inherited. Failing to answer Yes causes TurboTax to treat the distribution as coming from your own IRA and apply your basis in nondeductible traditional IRA contributions.

Don't be misled by the poor wording of the question that seems to be asking is you inherited from a financial institution. It's asking if you received the distribution from an inherited IRA, reported with code 4 in box 7 (which TurboTax should already know since you would have entered the code 4 in box 7).

dmertzAnswer

Employee

David258Author

Thank you so much for clarifying that! Indeed, changing my answer to yes for the question, "Did David Inherit the IRA from Vanguard?" makes the distribution taxable. Maybe TurboTax could change the phrasing to, "Is this an inherited IRA, that David has at Vanguard?" since clearly I did not inherit it from Vanguard. Ironically the fact that they customize the message with my name and the institution name makes it a lot harder to Google. Thanks again for the help!

David