Questions about Inherited IRA Distribution and Form 8606 Requirements
My father-in-law passed away about 8 months ago, and my husband received a portion of his IRA (split between him and his three brothers). Instead of rolling it over, my husband took his share as a cash distribution. The financial institution that managed my father-in-law's account handled the calculations and sent us a 1099-R for the distribution, which we'll need to report on our taxes. I was using TurboTax to prepare our return, and everything was fine until I got to the part about the IRA distribution. When it asked if this was an inherited IRA, I tried both options. If I select "No," the software seems happy and moves on. But if I select "Yes," it starts asking about basis and things get confusing. It then tells me I need to complete Form 8606. If I indicate my father-in-law had no basis, the software suddenly shows a massive refund which can't possibly be right. If I say he did have a basis, it gets even more complicated. Honestly, I have zero information about what contributions my father-in-law made to this IRA during his lifetime or whether they were pre-tax or after-tax. The Form 8606 that TurboTax is telling me to complete doesn't seem relevant to our situation since we took a lump sum distribution rather than transferring it to another IRA. We're fine with paying the taxes on this inheritance - we expected that. But I'm confused about whether Form 8606 is actually required in our case since we didn't roll anything over. Can someone help clarify this?
19 comments
Join the conversation
Amina Diallo
You definitely need to answer "Yes" to the inherited IRA question since that's exactly what this was. The confusion you're experiencing is common with inherited IRAs. Form 8606 is used to track the non-deductible (after-tax) contributions to traditional IRAs, which establishes the "basis" in the account. If your father-in-law made after-tax contributions to his IRA during his lifetime, then a portion of the distribution would be tax-free (since those contributions were already taxed once). However, if all of his contributions were pre-tax (the most common scenario), then the entire distribution is taxable. It sounds like the financial institution that issued the 1099-R already calculated the taxable amount correctly, and that's what's reported on your form. The huge refund you're seeing when selecting "no basis" is likely a software glitch or misinterpretation. The program might be incorrectly assuming you're entitled to exclude the distribution from taxation. I recommend calling the financial institution that managed your father-in-law's IRA and asking if they have records of any after-tax contributions (basis). If they confirm there were none, then you can confidently select "no basis" and override the refund calculation if needed.
0 coins
GamerGirl99
•Thanks for this explanation. I'm in a similar situation but with my mom's IRA. Quick question - is there a difference in how this is handled if the deceased was already taking RMDs before they passed? Also, does the age of the beneficiary matter at all for tax purposes?
0 coins
Amina Diallo
•Yes, if the original IRA owner was already taking Required Minimum Distributions (RMDs), it doesn't change how you report the inheritance, but it may affect what distribution requirements you face going forward. As a non-spouse beneficiary, you'll need to fully distribute the inherited IRA assets within 10 years of the original owner's death (assuming the death occurred after 2019 when the SECURE Act took effect). The age of the beneficiary does matter in certain circumstances. If you're a spouse beneficiary, you have special options like treating the IRA as your own. For non-spouse beneficiaries, if you're more than 10 years younger than the decedent, different distribution rules may apply. However, for tax reporting purposes of a lump sum distribution like the original poster took, age doesn't significantly impact how you report it on your tax return.
0 coins
Hiroshi Nakamura
After struggling with inherited IRA tax questions myself last year, I finally found a solution that saved me hours of frustration. I used https://taxr.ai to analyze my 1099-R and other documents. Their AI software actually explained exactly how to handle the Form 8606 situation and whether I needed to file it. They have this document analysis feature that checks your forms and explains what they mean in plain English. It walked me through the entire process and clarified what my basis was (or wasn't) without me having to guess. Much clearer than trying to interpret tax software prompts or IRS instructions.
0 coins
Isabella Costa
•I've never heard of this service before. Did you have to upload your actual tax documents? I'm always nervous about privacy with these kinds of tools.
0 coins
Malik Jenkins
•How does it compare to just calling the IRS directly? I tried getting help with an inherited IRA question last year and was on hold for literally 3+ hours before giving up.
0 coins
Hiroshi Nakamura
•You upload documents through their secure system, but you can also black out personal info like SSN, account numbers, etc. before uploading. Their privacy policy is pretty solid - they use bank-level encryption and don't share your docs with third parties. I was hesitant at first too, but it felt safer than some of the alternatives. For comparing to the IRS, that's exactly why I tried them instead. I spent two days trying to get through to the IRS with no luck. The AI was able to answer my specific question about Form 8606 requirements for inherited IRAs immediately, plus it saved all my document analyses in one place so I could reference them later when actually filing my taxes.
0 coins
Malik Jenkins
I just wanted to follow up on my comment from yesterday. I ended up trying https://taxr.ai after all and I'm actually shocked at how well it worked for my inherited IRA question! I uploaded my 1099-R (with personal info redacted) and it immediately identified that it was for an inherited IRA distribution. The analysis explained that since I took a full distribution, Form 8606 was only necessary if the original owner had made non-deductible contributions. It even showed me exactly where on the 1099-R to look to determine if there was a taxable amount less than the gross distribution (Box 2a vs Box 1), which would indicate there might be a basis to track. This was way more helpful than the 45 minutes I spent reading IRS publications trying to figure this out myself.
0 coins
Freya Andersen
If you're still struggling to get answers about this inherited IRA situation, you might want to try Claimyr (https://claimyr.com). I was in a similar situation last year with an inherited 401k that got rolled into an IRA, and I couldn't figure out the basis question either. I tried calling the IRS for weeks with no luck - always on hold forever. Claimyr actually got me connected to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with confirmed that since I took a complete distribution, I didn't need to file Form 8606 unless the original owner had made non-deductible contributions. They also explained how to verify if there was a basis by checking with the financial institution.
0 coins
Eduardo Silva
•That sounds too good to be true. The IRS wait times are notoriously awful. How much does this service cost? And are you sure you're actually getting connected to real IRS agents?
0 coins
Leila Haddad
•I've heard mixed things about these "skip the line" services. How do you know they're not just recording your call or collecting your info?
0 coins
Freya Andersen
•They use a callback system - essentially they navigate the IRS phone tree and wait on hold for you, then call you when they have an agent on the line. You pay for the convenience of not having to wait on hold yourself. It's definitely real IRS agents you talk to - they just handle the waiting part. Regarding security, they don't actually stay on the call when you're connected with the IRS agent. The way it works is they call you, then connect you directly to the IRS person who's already on the line. They're not recording or monitoring the conversation at all - they're completely out of the loop once you're connected. I was skeptical too, but after being on hold for 2+ hours myself multiple times, it was worth trying.
0 coins
Leila Haddad
Just wanted to update after trying Claimyr. I was super skeptical (as you could see from my previous comment), but I was desperate after spending three separate days trying to reach someone at the IRS about my inherited IRA questions. Claimyr actually did exactly what they promised. They called me back in about 35 minutes with an IRS agent ready to talk. The agent confirmed that I didn't need to file Form 8606 for my inherited IRA distribution since the original owner (my aunt) had only made pre-tax contributions. They explained that the 1099-R code in Box 7 indicated it was properly coded as an inherited distribution. This saved me from potentially claiming an incorrect refund through my tax software's misinterpretation. Sometimes you actually need to speak to a human, and this service made that possible without the usual headache!
0 coins
Emma Johnson
I helped my mom with a similar situation last year. In our case, we called the company that managed the IRA and asked them directly if there was any after-tax money (basis) in the account. They were able to check their records and confirm there wasn't any, which made our tax filing much simpler. If you're not sure about the basis, I'd recommend starting with the financial institution rather than guessing. They should have those records even if you don't.
0 coins
Connor O'Brien
•Thanks for this suggestion! I called the financial institution this morning and they confirmed there were no after-tax contributions to my father-in-law's IRA. It was all pre-tax money, so there's no basis to track. That certainly simplifies things. I was also able to carefully review the 1099-R again, and I see that Box 7 has a code "4" which apparently indicates this was properly reported as a death distribution. So it seems like the tax software was just confusing me, and I should be able to indicate "Yes" for inherited IRA and "No" for basis, then override the refund calculation if needed.
0 coins
Ravi Patel
Has anyone noticed that tax software seems to get confused with inherited IRAs? I've used three different programs over the years and they ALL struggle with this scenario. I wish they would update their interfaces to make these questions clearer for situations like this!
0 coins
Astrid Bergström
•YES! I had this exact problem with FreeTaxUSA last year. It kept asking me questions that didn't seem relevant to my situation and gave me completely different results depending on how I answered. I finally gave up and paid a professional.
0 coins
GalacticGuardian
I went through this exact same situation two years ago when my grandmother passed away and left me part of her IRA. The tax software confusion is real - I think the issue is that these programs are designed primarily for regular IRA distributions, not inherited ones. One thing that helped me was understanding that the "basis" question is really asking whether the original owner ever made contributions with money that was already taxed (after-tax contributions). Most traditional IRAs are funded entirely with pre-tax dollars, so there's usually no basis to worry about. The key is to look at your 1099-R form carefully. If Box 2a (taxable amount) equals Box 1 (gross distribution), then there's no basis and the entire amount is taxable. If Box 2a is less than Box 1, that might indicate some after-tax contributions were made. Since you confirmed with the financial institution that there were no after-tax contributions, you should be fine selecting "inherited IRA = Yes" and "basis = No" and then manually correcting any weird refund calculations the software produces. The important thing is that you report it as an inherited distribution so it's properly coded on your return.
0 coins
Sophia Carter
•This is really helpful! I'm new to dealing with inherited IRAs and had no idea about the Box 1 vs Box 2a comparison on the 1099-R. That's a much clearer way to understand whether there's basis to worry about than trying to decipher the tax software questions. I'm curious - when you say "manually correcting any weird refund calculations," how exactly do you do that in the software? Do you just override the amounts it calculates, or is there a specific way to handle it? I'm worried about making a mistake that could trigger an audit.
0 coins