Question

Form 8606 - Inherited IRA

Accepted Answer

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?" on page 5 of the Publication 590-B Distributions from Individual Retirement Arrangements (IRAs). If you inherited a pension, see "Survivors and Beneficiaries" on page 39 of 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.

Situation	What to Do
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 Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. and possibly Form 8606 Nondeductible IRAs.
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 previously described.

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

From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
Click Retirement Plan Income in the Federal Quick Q&A Topics menu to expand, then click IRA, 401(k), and pension plan distributions (Form 1099-R).
Click + Add Form 1099-R to create a new copy of the form or click Edit to review a form already created.
Click Quick Entry to scroll down to answer all applicable questions or click Step-by-Step Guidance to proceed with the program interview questions.
On the screen titled Retirement Plan Income - Box 7, check 7. IRA/SEP/SIMPLE, select "4-Death" from the 7. Distribution code drop-down, then click Continue.
On the screen titled Retirement Plan Income - Special Distributions, check Lump-sum distribution - Form 4972 (if existing), then click Continue.
On the screen titled Retirement Plan Income - Inherited IRA, select the applicable answers, then click Continue.

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

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

From within your TaxAct return (Online or Desktop), click Federal. On smaller devices, click in the upper left-hand corner, then click Federal.
Click Retirement Plan Income in the Federal Quick Q&A Topics menu to expand, then click Taxpayer/Spouse Nondeductible IRAs (Form 8606).
Continue with the interview process to enter all of the appropriate information.

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

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.