Question

Turbotax incorrectly calculating taxable income for traditional IRA distribution?

Forum|Forum|5 years ago
April 10, 2021
1 reply
0 views

This may be a longshot, but perhaps someone can help. I'm helping my mother do her taxes. My dad passed in 2020 and my mother inherited his Traditional IRA.

My dad took a distribution from his Traditional IRA (before he passed of course), my mom took a distribution from her Traditional IRA, and then my mom also took a distribution from the inherited Traditional IRA (formerly my father's IRA). She did not roll those funds back into the IRA.

The first two distributions are being treated as taxable, but the last one is not and I can't figure out why. It doesn't seem correct to me.

Does anyone know why it wouldn't be treated as taxable? Am I missing something simple?

TurboTax Premier Online

D

dmertz

Employee

A Form 1099-R with code 4 in box 7 and the IRA/SEP/SIMPLE box marked must have the same amount in box 2a (taxable amount) as is in box 1 and box 2b Taxable amount not determined marked. As long as you indicate that the account was inherited, that she inherited it from her spouse, that she did not put this money into her own IRA and that your dad did not make any nondeductible contributions to his traditional IRAs, TurboTax will treat it as taxable.

R

rnastiAuthor

On the form we received, Box 7 has a code "7" entered (instead of 4) the IRA/SEP/Simple box is checked, Box 1 and Box 2a are the same, and 2b is marked "Taxable amount not determined".

Is the difference in the code the reason for this?

R

rnastiAuthor

OK this has been solved.

When TurboTax asks whether the inherited funds were rolled over into a new IRA, I answered "Yes" because I assumed it was referencing the entire IRA account.

However, TurboTax was actually referencing the distribution itself. Basically, it was asking whether the distribution was actually taken or whether it was immediately rolled back into an IRA account.

I should have answered "No" and once I did that it corrected the issue. Overall, the question seems ripe for misunderstanding (but then, I would obviously think that since I misunderstood it).