TurboTax Error When Reporting Inherited IRA Distribution and Traditional IRA Contribution

Thanks for the info! Quick question - does the amount of my income ($181k) mean I can't deduct the traditional IRA contribution anyway? I thought there was an income limit for deducting traditional IRA contributions if you have a 401k at work, which I do.

You're absolutely right about the income limits for traditional IRA deductions when covered by a workplace retirement plan. With your income of $181,500, you're well above the phase-out limit (which for 2024 is $83,000-$93,000 for single filers or $136,000-$146,000 for married filing jointly). So while you can still make the contribution, you cannot deduct it from your taxes. This might actually be causing your TurboTax error - the software could be trying to apply a deduction you're not eligible for. Make sure you indicate in TurboTax that this is a non-deductible traditional IRA contribution, which requires filing Form 8606. The software should guide you through this, but sometimes you need to manually select the non-deductible option.

How does this work exactly? Do you just upload your tax docs and it tells you what to do? Does it actually file for you or just give advice?

Sounds interesting but I'm always nervous about uploading financial docs to websites I'm not familiar with. Is it secure? And does it handle more complex situations like K-1 forms or rental property?

You upload your tax documents and it analyzes them to identify potential issues or optimizations. It doesn't file your taxes for you - it gives you specific guidance on how to correctly enter your information in whatever tax software you're using. It's like having a tax expert look over your documents before you file. The site uses bank-level encryption for all uploads and document storage. They're very transparent about their security practices. And yes, it handles complex situations really well - including K-1 forms, rental properties, self-employment income, and especially tricky retirement account situations like inherited IRAs and backdoor Roth conversions.

Wait, this actually works? I thought it was impossible to get through to the IRS these days. How much does this service cost? Is it worth it?

This sounds like a scam tbh. Nobody can magically get you through to the IRS faster. They probably just keep you on hold themselves and charge you for the privilege.

It absolutely works - it uses a callback system that essentially holds your place in line. When you're getting close to reaching an agent, you get a call connecting you directly to the IRS. The whole process took about 15 minutes for me, compared to the 2+ hours I wasted trying to call directly. I don't want to get into specific costs here, but I can tell you it was absolutely worth it for me. The peace of mind from talking directly to an IRS agent about my inherited IRA situation saved me a ton of stress, and potentially saved me from making a costly mistake on my taxes. The IRS agent confirmed exactly how to report everything correctly, which no amount of Googling or asking friends could have provided with the same certainty.

Thanks for this suggestion! I've heard about backdoor Roth conversions but wasn't sure if they applied to my situation. If I'm understanding correctly, since I can't deduct the traditional IRA contribution due to my income, converting it to a Roth would mean I'm not being taxed twice? Do you know if doing this backdoor conversion would fix the TurboTax error I'm getting, or would it potentially create new complications for filing?

You've got it exactly right - since you can't deduct the traditional IRA contribution, you've already paid tax on that money. If you convert to a Roth soon after contributing (before there's significant earnings), you'll pay very little or no additional tax on the conversion. Then all future growth will be tax-free when you withdraw in retirement. Regarding your TurboTax issue, doing a backdoor Roth actually might simplify things. First, fix your current issue by properly coding the inherited IRA distribution and marking your traditional IRA contribution as non-deductible. Once that's working, you can add the Roth conversion as a separate transaction. TurboTax has a specific section for Roth conversions that's generally quite straightforward. The software will generate Form 8606 to track your non-deductible basis and properly report the conversion.

I switched from TurboTax to FreeTaxUSA last year and found it much easier for handling my inherited IRA from my dad. Their interface for entering distribution codes is more straightforward, and they have really clear explanations about inherited IRA rules. Plus it's way cheaper!