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If you have an inherited IRA, there are various possible scenarios that determine how you will complete your return using the TaxAct® program.  These scenarios are listed below, along with instructions for entering the information in the TaxAct program.

Inherited IRAs

If you inherited an individual retirement account (IRA), you may have to include part of the inherited amount in your income. See What If You Inherit an IRA in IRS Publication 590-B Distributions from Individual Retirement Arrangements (IRAs). If you inherited a pension see Survivors and Beneficiaries in IRS Publication 575 Pension and Annuity Income.

If you inherit a traditional IRA from a person who had a basis in the IRA because of nondeductible contributions, that basis remains with the IRA. Unless you are the decedent's spouse and choose to treat the IRA as your own, you cannot combine that basis with any basis you have in your own traditional IRA(s) or any basis in traditional IRA(s) you inherited from other decedents. For guidance on entering your data, find the scenario below that matches your situation and follow the navigation instructions provided.

Situations

Owned traditional IRA distribution and did not inherit traditional IRA distributions. If you took a distribution from a traditional IRA you own and had no distributions from inherited IRAs, figure the taxable amount of your distribution using TaxAct through the entry of Form 1099-R and possibly Form 8606.

Inherited traditional IRA distribution with no basis and did not own traditional IRA distributions. If you took a distribution from a traditional IRA you inherited without a basis, and had no distributions from IRAs which you own, figure the taxable amount of your distribution using TaxAct through the entry of Form 1099-R. Do not complete Form 8606.

Inherited traditional IRA distribution with basis and did not own traditional IRA distributions. If you took a distribution from a traditional IRA you inherited which had a basis, and had no distributions from IRAs which you own, figure the taxable amount of the inherited traditional IRA distribution using the Retirement Plan Distributions Worksheet after entering the distribution on Form 1099-R. File a paper return and include all copies of Forms 1099-R and 8606.

Inherited traditional IRA distribution with no basis and owned traditional IRA distribution with no basis. If you took a distribution from a traditional IRA you inherited without a basis, took a separate distribution from a traditional IRA you owned, and you had no basis in traditional IRAs, figure the taxable amount of both distributions using TaxAct through the entry of Form 1099-R.

Inherited traditional IRA distribution with no basis and owned traditional IRA distribution with basis. If you took a distribution from an inherited traditional IRA without a basis, took a separate distribution from a traditional IRA you owned, and you had a basis in traditional IRAs, figure the taxable amount of your owned traditional IRA distribution using TaxAct through the entry of Form 1099-R and the Form 8606 interview screens. Figure the taxable amount of the inherited traditional IRA distribution using TaxAct through the entry of Form 1099-R.

Inherited traditional IRA distribution with basis and owned traditional IRA distribution with no basis. If you took a distribution from an inherited traditional IRA which had a basis, and took a distribution from a traditional IRA you owned with no basis in traditional IRAs, figure the taxable amount of your owned traditional IRA distribution using TaxAct through the entry of Form 1099-R (a Form 8606 will NOT need to be filled out for this distribution). Figure the taxable amount of the inherited traditional IRA distribution using the Retirement Plan Distributions Worksheet after entering the distribution on Form 1099-R. File a paper return and include all copies of Forms 1099-R and 8606.

Inherited traditional IRA distribution with basis and owned traditional IRA distribution with basis. If you took a distribution from an inherited traditional IRA which had a basis, took a separate distribution from a traditional IRA you owned, and you had a basis in traditional IRAs, you must complete separate Forms 8606 to determine the taxable and nontaxable portions of each distribution. After entering the distribution on Form 1099-R, use the appropriate Form 8606 (taxpayer or spouse) in TaxAct to figure the taxable amount of your owned traditional IRA distribution. Figure the taxable amount of the inherited traditional IRA distribution using the Retirement Plan Distributions Worksheet after entering the distribution on Form 1099-R. File a paper return and include all copies of Forms 1099-R and 8606.

Navigation Instructions

Use the following instructions to enter the information described above.

Form 1099-R

To enter your Form(s) 1099-R in the TaxAct program:

  1. From within your TaxAct return (Online or Desktop), click on the Federal tab. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Retirement Plan Income to expand the category and then click IRA, 401(k), and Pension Plan Distributions (Form 1099-R)
  3. Click Add to create a new copy of the form or click Review to review a form already created 
  4. Click Quick Entry or Step-by-Step Guidance
    1. If you select Quick Entry, fill in the form to match your paper copy of Form 1099-R and be sure to scroll down to answer questions.
    2. If you select Step-by-Step Guidance, the program will proceed with the interview questions for you to enter or review the appropriate information.

Watch for the screen titled Retirement Plan Income - Special Distributions which has an Inherited IRA check box. If using Quick Entry, the check box will be about half way down the Additional Information Not Reported section on Form 1099-R.

Retirement Plan Distributions Worksheet

To access the Q&A interview screens for the Retirement Plan Distributions Worksheet:

  1. After entering Form 1099-R (with the IRA/SEP/SIMPLE box checked and a distribution code of four (4) entered in Box 7*), you will be brought back to the Form 1099-R Summary screen.
  2. Click Continue on this screen, and then click No on the conversion and rollover screens
  3. You will come to a screen titled Inherited IRAs - Taxpayer (or Spouse) where you will click Continue and the program will proceed with the interview questions for you to enter or review the appropriate information (If you own a traditional IRA and you indicated nondeductible contributions had been made, you will be brought to the Form 8606 interview screens first.)
  4. On the screen titled Taxpayer (or Spouse) Inherited IRAs - Summary, the program will tell you the taxable amount of the inherited distribution based on your prior entries

*If the distribution code on your Form 1099-R, Box 7 is NOT a code four (4), you will need to use the Quick Entry method in order to check the Inherited IRA box.*

Form 8606

To access the Q&A interview screens for Form 8606 (owned traditional IRA with basis):

  1. Click on the Federal tab. On smaller devices, click the menu icon in the upper left-hand corner, then select Federal
  2. Click Retirement Plan Income to expand the category, and then click Taxpayer (or Spouse) Nondeductible IRAs (Form 8606)
  3. The program will proceed with the interview questions for you to enter or review the appropriate information

Alternatively, the Form 8606 interview screens will follow the Form 1099-R entry screens, if applicable.


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