Nondeductible IRA contributions - Form 8606 - did TurboTax goof?

[Runner]

I've been using TurboTax since 2010.

For 2013-2017, I made the maximum traditional IRA contributions for myself and my wife ($6500 + $6500 = $13K). The IRAs are simply bank CDs that I fund at the end of each year. Each year, due to our income, some or all of my $6500 contribution has been nondeductible. For 2013-2017, I have a total of about $18K in nondeductible contributions, which TT has duly reported on IRS Form 8606 each year.

Since my income tax situation is very simple, I have paid no attention to the Form 8606 prepared by TT. Since they have been doing my taxes since 2010, I simply assumed they knew what they were doing.

In looking at the Form 8606, it now appears to me that it is a "rolling" form - that each 8606 should include the value of all my traditional IRAs and the value of all my nondeductible contributions, so that the one for this year would show not only the 2017 $6500 contribution and $6500 nondeductible portion, but also the value of all my IRAs since 2013 and the total of $18K in nondeductible contributions.

Is this a problem, did TT goof, or am I misunderstanding Form 8606?

[bingybear]

First of all, if you don't put in the value at the EOY, TT would have no way of guessing it.

Off hand I don't know if the 8606 if required when you don't have a non-deductible event or a IRA withdraw with some tax basis. But the obvious first question would be when you started your taxes this year, did you import last years data from the correct file or at all. If not, they you messed up.

When I changed from a different tax code to TT, the import of IRA tax basis was not imported correctly and I had to provide the values from older tax forms manually. This year it had the correct basis and processed the changes to basis due to roth conversions. I had to supply the EOY values because TT would have no way of deriving those values.

So my question is did you port the prior year data into this years taxes?

[Runner]

Quote:

Originally Posted by bingybear First of all, if you don't put in the value at the EOY, TT would have no way of guessing it. Off hand I don't know if the 8606 if required when you don't have a non-deductible event or a IRA withdraw with some tax basis. But the obvious first question would be when you started your taxes this year, did you import last years data from the correct file or at all. If not, they you messed up. When I changed from a different tax code to TT, the import of IRA tax basis was not imported correctly and I had to provide the values from older tax forms manually. This year it had the correct basis and processed the changes to basis due to roth conversions. I had to supply the EOY values because TT would have no way of deriving those values. So my question is did you port the prior year data into this years taxes?

All of my taxes in years 2010-2017 have been through TT. Thus, all of my IRA contributions have been reported on Forms 8606 prepared by TT.

Each year, TT does not ask me any questions at all regarding the preparation of Form 8606 - it simply tells me a portion of my contribution is nondeductible because my income is too high and fills in the Form 8606 with the data for that year's contribution.

TT does know all of the prior years' contributions and the prior years' nondeductible portions since it prepared those Form 8606s as well. If TT needed to ask me questions in the preparation of Form 8606, it presumably would have asked me. Since it didn't, this is my confusion - if there have been no withdrawals or other events, is it acceptable simply to fill out each year a Form 8606 showing this year's contribution and this year's nondeductible portion? I would have assumed it would be since all of the prior years' 8606s are a matter of record with the IRS, but when I actually looked at the form this year I started wondering.

[bingybear]

you say that TT knows all your previous years data. One of the first things it ask me is if I want to download data from the previous year. This step is required to pull the data into the present years program. I use the download version.
Look at your last few years returns. If you really had non-deductible IRA contributions, they you should see them adding together. If you don't see that, or that previous year does not carry the basis over, then you likely did not import the previous years data. If so, who knows what else is messed up.

[cathy63]

If you are just making a non-deductible contribution to your tIRA and not doing any distributions or conversions, then you only need to fill out lines 1, 2, 3 and 14 of Part I. The instruction for this is on the form itself just below line 3. If you look at it, you'll see that your tIRA value would go on line 6, which TTax is correctly skipping in this scenario, so there's no need for it to ask you for that number.

The thing that you should double check in your current and past returns is line 2. Remember there's a separate 8606 for you and one for your spouse in each year when you made a non-deductible contribution, so you need to check both. If you skipped a year, then TTax will not fill out an 8606 for that year, but it does track the basis in the background and will use it in subsequent years.

If this year's form does not look right, then it might actually be due to an error in last year's return. Or maybe you made a conversion in a prior year that reduced your basis to 0, so you are only seeing this year's contribution? I just double checked ours. We didn't have 8606's last year, but this year's was filled out correctly. I did have to enter the eoy basis because I did a Roth conversion, and it ended up in the right place on the form.

[Runner]

Voila, I have answered my own question. Yes, I do download all previous years' data. But no, TT does not automatically pull forward your prior years' nondeductible contributions to traditional IRAs, or at least it didn't for me. Instead, when you are completing this year's IRA deduction, it asks you if you have a basis (nondeductible contributions) in previous years. Since I didn't understand what they were asking, and they said the situation was "uncommon," I blew it off. Fortunately, filing an amended Form 8606 is extremely simple. All I had to do was change line 2 ("Enter your total basis in traditional IRAs") and attach a 1040X with an explanation of my previous mistake.

[bingybear]

Quote:

Originally Posted by Runner Voila, I have answered my own question. Yes, I do download all previous years' data. But no, TT does not automatically pull forward your prior years' nondeductible contributions to traditional IRAs, or at least it didn't for me. Instead, when you are completing this year's IRA deduction, it asks you if you have a basis (nondeductible contributions) in previous years. Since I didn't understand what they were asking, and they said the situation was "uncommon," I blew it off. Fortunately, filing an amended Form 8606 is extremely simple. All I had to do was change line 2 ("Enter your total basis in traditional IRAs") and attach a 1040X with an explanation of my previous mistake.

I think that question comes up if you don't have a cost basis in the program. I still expect you did not load your data from the previous years. This could go back a while. I guess the question is how far back to you need to revise returns to get all your basis accounted for.

[JoeWras]

My recollection is it remembers my basis and asks if I need it. Or maybe it just says this is your basis, do you need to change it (This is uncommon...) In any case, I print that form off every year and check the basis. I've been throwing some in every year in anticipation of future Roth roll-overs.

I learned one thing with TT: Don't ignore "This is uncommon". Most of us on this board have some scenario that falls into their "This is uncommon" paths. I have to plow through a few of them. And, not crazy stuff. This is one example. Another is foreign tax credits... Pretty common if you have mutual funds.

[bingybear]

Quote:

Originally Posted by JoeWras My recollection is it remembers my basis and asks if I need it. Or maybe it just says this is your basis, do you need to change it (This is uncommon...) In any case, I print that form off every year and check the basis. I've been throwing some in every year in anticipation of future Roth roll-overs. I learned one thing with TT: Don't ignore "This is uncommon". Most of us on this board have some scenario that falls into their "This is uncommon" paths. I have to plow through a few of them. And, not crazy stuff. This is one example. Another is foreign tax credits... Pretty common if you have mutual funds.

+1
I just figured I must be uncommon.

I have my foreign tax credit reduced by AMT this year. A first for me.

TT code knows nothing about me until I load last year's data

[gauss]

Quote:

Originally Posted by Runner Voila, I have answered my own question. Yes, I do download all previous years' data. But no, TT does not automatically pull forward your prior years' nondeductible contributions to traditional IRAs, or at least it didn't for me. Instead, when you are completing this year's IRA deduction, it asks you if you have a basis (nondeductible contributions) in previous years. Since I didn't understand what they were asking, and they said the situation was "uncommon," I blew it off. Fortunately, filing an amended Form 8606 is extremely simple. All I had to do was change line 2 ("Enter your total basis in traditional IRAs") and attach a 1040X with an explanation of my previous mistake.

And that is the flaw when people think that buying tax software relieve's them of the obligation for understanding tax law. The tax sw companies marketing certainly propagates this perception.

There is another thread here discussing error's in tax software.

There are many outlets to have a high quality tax return done prepared for you -- many at no cost with no income or asset level or age restrictions.

The really insidious part of form 8606 is part III. Anyone with a Roth IRA who hopes to take out non-qualified tax-free contributions/conversions before age 59 1/2 should read this section ASAP!

Glad to hear that you were able to get the revised 8606s filed and accepted by the IRS. I had to go through something similar a few years ago when I realized that I missed reporting a $50,000 rollover from 401k to Roth IRA on Part III.

-gauss