TurboTax and RMD status change on update

[statsman]

Just a possible heads up for anyone using TurboTax and filing one or more RMDs. I had initially entered in data into TurboTax about three weeks ago to confirm what I expected to be a small refund (less than $100). It matched my spreadsheet exactly.

Today, I decided to finish filing taxes, and when I entered TurboTax, I needed to update the program, which is typical. Once I was in the menus, the total at the top indicated we owed more than $300.

I couldn't figure it out until I entered the forms. There, on line 23, was an additional tax for almost $400. I tracked this down to a small RMD I have that somehow got changed from distributed to undistributed. The delta I was seeing was a penalty for not taking my RMD, which was wrong.

Somehow, during the software update for TurboTax, the status of this distribution got changed. I have never seen this happen before, and I am not sure why it happened this time. I guess the lesson here is to double-check the numbers if TurboTax performs a software update.

 

[audreyh1]

Interesting. How would TurboTax even know whether you had met your RMD? That’s not part of the 1040 tax return.

Thanks for the heads up.

 

[statsman]

Interesting. How would TurboTax even know whether you had met your RMD? That’s not part of the 1040 tax return.

The menu/worksheet in TurboTax still listed the RMD amount and the gross distribution , but the field indicating how much of the distribution went toward the RMD was set to $0. Once I fixed that, we were back to our small refund. And with that, taxes have been filed.

 

[audreyh1]

I still don’t get why that’s in TurboTax as it’s not part of the 1040 tax reporting. I suppose it’s an extra feature? Calculating an RMD penalty that’s added to your taxes is not a helpful feature IMO.

 

[TheWizard]

The menu/worksheet in TurboTax still listed the RMD amount and the gross distribution , but the field indicating how much of the distribution went toward the RMD was set to $0. Once I fixed that, we were back to our small refund. And with that, taxes have been filed.

I use FreeTaxUSA, not TurboTax.
Nonetheless, your terminology seems incorrect.
There are no "RMD" entries on form 1040. There are 1099-R entries with various distribution codes such as normal distribution and rollovers.

Furthermore, Form 1040 knows nothing about your 12/31 dollar amount of your tax-deferred accounts and therefore nothing about your RMD amount for the current year..
It's strictly up to you to take normal distributions from your various (tIRA, 401(k), 403(b)) accounts that equal or exceed your RMDs from those accounts...

 

[Sunset]

I'm using turbo tax for the first time, so all is new to me in the interview and it definitely asks about the RMD amount taken and required using actual dollar amounts.
I've normally used H&R Block and their question on RMD was not as complex/intrusive as far as I can recall.

 

[statsman]

I'm using turbo tax for the first time, so all is new to me in the interview and it definitely asks about the RMD amount taken and required using actual dollar amounts.

Yep. And if the total amount of the IRA distributions applied toward the RMD is less than the RMD, then there is a penalty. This shows up in Form 5329, which is forwarded to Schedule 2, which is forwarded to Form 1040 Line 23. I first saw the additional tax on the Form 1040 Line 23. I worked backwards to find out where TurboTax had reset my inherited IRA distribution to apply $0 toward the RMD instead of the full RMD amount.

My apologies from not having the right terminology.

 

[PaunchyPirate]

TurboTax changed the way questions were asked for 1099-R and RMD reporting this year. When I first looked at them for my Mother's taxes, it was VERY ambiguous what they were asking you to enter. I did some research and a lot of people were complaining about the new way they phrased things. I never had a problem in past years using the same exact RMD situations. I had done a first pass of my Mom's taxes. Yesterday, when I popped into TurboTax to enter her last 1099 from a gas lease bonus payment, there was a software update to apply, which I did. And suddenly she had a $167 penalty for not taking her full RMD (which is not true). So I knew that I would have to revisit those 1099-R questions again. This thread confirms it.

It's not a problem for me, because after I do this first pass. I delete it entirely and start from scratch and re-enter everything. I can't wait to see how they updated the questions to make it clearer what to enter. Hopefully, they made the situation better.

 

[Koolau]

Interesting. How would TurboTax even know whether you had met your RMD? That’s not part of the 1040 tax return.

Thanks for the heads up.

Imagine this was your first time using TT. If you just assumed it was "right" you could end up paying more than you needed to. IF the IRS caught it, that could be yet another issue to deal with. I've been alerted more often that I've over paid than under paid. Still I'm guessing that goes in some little file that says this guy doesn't know what he's doing - let's keep an eye on subsequent 1040s.

Not a good way to be introduced to TT. Not really a good way to be treated by TT as an old customer. Good that you knew how to look for the error.

Hope you get it straightened out.

 

[yakers]

Its a bit of a mess with TT and RMDs (& QCDs) this year for me. DW has an IRA, I have 2 and we transitioned one each from Vanguard to Schwab. So TT asks about how much RMD, well it was X amount for the VG account but mid year we moved the account wht is it now for the new account? And I take more from the Vanguard account than the Schwab. Definitely took all necessary RMDs but it was not easy to enter, had to fudge a bit to get to zero, so whats the point of tax software?

 

[PaunchyPirate]

I re-did my mom’s return from scratch today and submitted. The RMD questions have been totally revamped in the last 2 weeks. They are much better than they were, but still more confusing than I think it needs to be. I took it slow and methodical and it calculated properly with no false notice that the RMD was not complete. They also added this info into a worksheet section where you can see the big picture and not just one 1099 at a time. I can live with it.

 

[Texas Proud]

Its a bit of a mess with TT and RMDs (& QCDs) this year for me. DW has an IRA, I have 2 and we transitioned one each from Vanguard to Schwab. So TT asks about how much RMD, well it was X amount for the VG account but mid year we moved the account wht is it now for the new account? And I take more from the Vanguard account than the Schwab. Definitely took all necessary RMDs but it was not easy to enter, had to fudge a bit to get to zero, so whats the point of tax software?

AFAIK the RMD is calculated at the beginning of the year and does not change no matter if you moved your account or not...

And if it is the same kind of account it does not matter if you take it from one account or many... as long as you took the whole RMD from all similar accounts... (inherited accounts are different...)

 

[Midpack]

Its a bit of a mess with TT and RMDs (& QCDs) this year for me. DW has an IRA, I have 2 and we transitioned one each from Vanguard to Schwab. So TT asks about how much RMD, well it was X amount for the VG account but mid year we moved the account wht is it now for the new account? And I take more from the Vanguard account than the Schwab. Definitely took all necessary RMDs but it was not easy to enter, had to fudge a bit to get to zero, so whats the point of tax software?

Not of age yet so I haven’t encountered RMDs in TT yet.

But I entered QCDs for the first time, after years of entering tIRA distributions for Roth conversions, and TT handled everything including QCDs correctly. Form 1040-SR looks right too showing QCD notation on line 4b. However I use the download version (to my Mac), I don’t have any idea what online versions are like.