After-tax 401k and IRA, separate accounting? + Turbotax mess

TT will do what you tell it to do. Therein lies both the blessing and the curse of software.

You will receive a 1099-R for each distribution. You enter each separately into TT. If you enter everything correctly in TT, the taxable amount of the IRA distribution will be calculated on Form 8606, Part I, and transfer to line 15 of the 1040. The inherited IRA distribution will wind up on line 15 of the 1040. The 401(k) distributions will wind up on line 16 of the 1040.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

curse of software.

into TT. If you enter everything correctly in TT, the taxable amount of the IRA di

Alas, the IRA doesn't calculate taxable vs untaxable (I can do it myself easily but the form won't say so).

TT however, after gathering the inherited IRA distribution information as inherited IRA, wants to know about any after-tax contributions made to any IRA and uses those to reduce that taxable amount, which is completely wrong. The inherited IRA has its own RMD schedule and throws off "income with respect to a decedent" as an ordinary deduction not subject to the 10% (or whatever % it is) limit. (This is the online TT as of last year and preceding years.)

I'd been getting around it by entering 0 after tax contributions and taking the deduction (which I labelled correctly as IRD), but this year there are actual after-tax deductions and entering 0 will no longer get past the TT bug.

The online version of TurboTax is described by the company as being suitable for "Simple/1040EZ tax returns". Perhaps it is time to move up to one of the more capable versions, or even to use a paid preparer.

for "Simple/1040EZ tax returns". Perhaps it is time to move up to one of the more

It's capable of distinguishing an inherited IRA from an actual one, just not capable of doing the right thing with the information.

If it can't do it right, it ought to say so, and not just do the wrong thing.

for "Simple/1040EZ tax returns". Perhaps it is time to move up to one of the more

I am Married Filing Joint, we have IRA deposits, and an inherited IRA RMD to deal with each year. TT has no issue handling this for me. Programs handling anything are only as good as the person entering the data. i.e. the data needs to be accurate. Unfortunately, without looking over your shoulder, it's not possible to tell what error you've made. I'll go on a limb to say that what you are trying to do is simple enough, TT isn't going to "get it wrong." (Disclosure - I am a compensated blogger at the TT blog. I am also a 30 year user of TT software)

It will go wrong if you have both RMD from regular IRAs with after-tax contributions, and an a RMD from the inherited IRA.

Try an experiment for me. Enter your inherited IRA and RMD from it, and say (when it asks) that you have contributed after tax to IRAs (suppose you had).

Watch it deduct some of that contribution from the inherited IRA's RMD.

Watch it not ask for or enter Income with respect to a decedent under deductions not subject to the 2% limit.

There have been complaints about this in the TT forums every year I've used it. It just never mattered before to me, because I had no RMDs from regular IRAs for it to confuse things with.

I highly value a TT paid blogger, by the way. It's a way to finally get it fixed!

into TT. If you enter everything correctly in TT, the taxable amount of the IRA di..

I just realized that I still need an answer to the mathematical question.

Is the correct result gotten by computing the total value of the IRAs, the fraction withdrawn, and figuring the tax/non-tax from that using the total after tax contributions to all,

Or by treating each distribution separately?

If each withdrawal were precisely the RMD, the answer would be the same. But if not, the tax amount is different.

Withdrawing an entire fully-taxable 401k, for example, would get a 1099 saying 100% taxable, but the totalization method would offset a lot of that with after-tax contributions to a minimally withdrawn IRA.

IRD is not a deduction. If estate tax was paid on the decedent's estate, some of *that* might be allocated as a deduction on Schedule A, but it's not typically going to be 100% of the income, or even close.

On 2013-01-25 08:37, bo peep wrote: > On Friday, January 25, 2013 9:03:23 AM UTC-7, Ron Hardin wrote: >> (This is the online TT as of last year and preceding years.) >

On 2013-01-25 15:08, Ron Hardin wrote: > There have been complaints about this in the TT forums every year >I've used it. > It just never mattered before to me, because I had no RMDs from >regular IRAs > for it to confuse things with.

I agree that in this unusual year for you (first year of confusing RMD's from regular IRA's), you should consult a professional.

You have no doubt in your mind that TT Online is a flawed tool, yet you insist on using it and are sure that you know how to fix the "bugs" with homegrown workarounds that the programmers and tax experts at TT obviously don't understand. You also seem to expect the volunteers in this group to back you up and/or spend time trying to come up with even more workarounds than what you have already tried.

Each 401(k) stands alone.

The inherited IRA stands alone.

All other traditional IRAs are lumped together for the Form 8606, Part I calculations.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

Yes, which is what happens. You have to calculate how much to deduct from the percentage given to you by the estate when you inherited it, and the year's RMD, the formula for which you also get from the estate.

It is, moreover, a deduction not subject to the 2% limit.

That TT wants to lump this with regular IRAs is weird, and in particular to offset it with after tax contributions to a regular IRA.

I'm not confused, except about the rule for combining 401k's and regular IRAs. Can you total the withdrawals and the after-tax contributions for all 401k's and IRAs, or not?

The inherited IRA I know how to do, thanks to a cheat sheet from the estate, written by a lawyer who specializes in estates. The problem is how to get TT to do it.

and.... if the inherited IRA had a basis, then a separate 8606 would be used to compute the taxable amount of a distribution from that IRA.

Now *that* is a feature that few if any software packages will support (I've checked two different professional packages), and certainly not the low-end ones. Usually one Form 8606 each for taxpayer and spouse, that's it.

Yeah. I've never seen a program that would allow you to add another 8606 for the same taxpayer. Then again, it is a very rare scenario. I.e., a taxpayer with a cost basis in their own IRA(s) and a cost basis in an inherited IRA.

It's not difficult to program.

And as I said the inability to add a deduction for IRD to the form provoked a lot of forum complaints at TT's site last year (you used to be able to add it on your own).

I don't know what's low end about allowing the rules to be followed.

You don't have to provide guidance, just get out of the way.