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Author: skidragon One star, 50 posts Old School Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121599  
Subject: Inherited Roth IRA distribution Date: 4/1/2012 5:45 PM
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I have an inherited Roth IRA which was created in 2010 by converting a traditional IRA just before I inherited it. The only distribution was the RMD I took in 2011. According to the IRS instructions I don't owe any tax, but I have to fill out form 8606 because I don't meet the 5 year rule. Unfortunately none of the tax software supports this (they have the form, but don't support the entries for inherited IRAs). It seems kind of silly to have to paper file just because I have to put a couple of numbers on a form resulting in a 0. Any ideas on how I can handle this and still e-file? What are the pitfalls if I left off the 8606 since it doesn't affect the amount of tax I owe?
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115782 of 121599
Subject: Re: Inherited Roth IRA distribution Date: 4/1/2012 6:27 PM
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I have an inherited Roth IRA which was created in 2010 by converting a traditional IRA just before I inherited it. The only distribution was the RMD I took in 2011. According to the IRS instructions I don't owe any tax, but I have to fill out form 8606 because I don't meet the 5 year rule. Unfortunately none of the tax software supports this (they have the form, but don't support the entries for inherited IRAs).

You're doing something wrong. I suspect that you're too strictly interpreting "you." See what happens if you interpret that word as "the decedent."

Please advise the code in box 7 of the 1099-R.

Phil
Rule Your Retirement Home Fool

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Author: skidragon One star, 50 posts Old School Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115785 of 121599
Subject: Re: Inherited Roth IRA distribution Date: 4/1/2012 7:05 PM
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I am not sure what you are looking at when you talk about "you" vs. "decedent"? All the instructions and pubs I read indicated the 5 year rule was based on when the Roth IRA was setup and/or contributed to regardless of ownership.

The box 7 code is T.

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115786 of 121599
Subject: Re: Inherited Roth IRA distribution Date: 4/1/2012 8:11 PM
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I am not sure what you are looking at when you talk about "you" vs. "decedent"? All the instructions and pubs I read indicated the 5 year rule was based on when the Roth IRA was setup and/or contributed to regardless of ownership.

That's true.

The 8606 is needed because should you get to withdrawing earnings before 2015 you'll have a distribution of taxable earnings. Your previously-taxed basis (including amounts taxable to the decedent) is tracked in Part III of the 8606. Since the form doesn't specifically address beneficiaries I thought perhaps you were going astray there.

Another possibility is that the coding of the 1099-R is blocking the 8606. It shouldn't.

I suggest you contact software support and tell them that the software isn't producing an 8606 that is required for your return.

Phil
Rule Your Retirement Home Fool

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Author: skidragon One star, 50 posts Old School Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115787 of 121599
Subject: Re: Inherited Roth IRA distribution Date: 4/1/2012 9:46 PM
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Unfortunately, neither TurboTax not H&R Block AtHome support filling in a form 8606 for an inherited Roth IRA. Both address the issue, but both explicitly state you have to manually fill out the 8606 so e-filing is not an option. I was hoping there might be a way around printing all that paper and snail mail filing.

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115788 of 121599
Subject: Re: Inherited Roth IRA distribution Date: 4/1/2012 11:33 PM
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Unfortunately, neither TurboTax not H&R Block AtHome support filling in a form 8606 for an inherited Roth IRA.

Why should the software care if it's inherited? No reason I can think of. More importantly, how does it know? I won't tell it if you don't.

Phil
Rule Your Retirement Home Fool

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Author: skidragon One star, 50 posts Old School Fool Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115794 of 121599
Subject: Re: Inherited Roth IRA distribution Date: 4/2/2012 11:47 AM
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It shouldn't care, but it asks anyhow. Even if I try different answers, it doesn't get to the 8606. It's as if they didn't finish the programming. I can go to directly to the form 8606, but it won't let me put in the numbers unless I use override; then it won't let me e-file.

At this point I am thinking my best option is to e-file without the 8606, then file a paper amendment before April 17 to add the 8606. This will also let me e-file my state tax.

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 115797 of 121599
Subject: Re: Inherited Roth IRA distribution Date: 4/2/2012 3:51 PM
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It shouldn't care, but it asks anyhow. Even if I try different answers, it doesn't get to the 8606.

I just did a test return in TaxAct, and it accurately added the 8606 and calculated the taxable portion of the distribution (zero) after I input the total of prior conversions (line 24. I just made up a number larger than line 19). No overrides were required. The distribution amount properly flowed to line 19 of the 8606.

I can't believe TT can't handle this, so it must be an input problem somewhere. Check your 1099-R input screen. Box 1 should be the gross amount of the distribution. The "taxable amount not determined" box in Box 2b should be checked. You have already advised that Box 7 is "T." All other numbered boxes should be blank or zero.

I'm not crazy about your proposed workaround since I suspect it's not a software problem, and you're looking at this situation through TY 2014. If TT tech support can't tell you what's wrong, move up the food chain.

Phil
Rule Your Retirement Home Fool

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