prior years basis - inherited IRA - Ed Slott and Company, LLC

Submitted by Ed Engel on Tue, 2015-04-14 01:33

Question: I received this alert on the TaxAct program and have no idea what to enter:

“You have indicated that the total prior years basis in your inherited IRAs is zero. If this is correct, check the box below and continue. Otherwise, leave the box unchecked and enter the total of all nondeductible contributions that were made to your inherited IRAs in all years prior to 2014 less any withdrawals or distributions of nondeductible contributions in those years.

Prior years basis in inherited traditional IRAs: ________________
Check if prior years basis in inherited traditional IRAs is zero:”

Background: In 2012, I inherited half of a non-spousal, traditional IRA from my father. My sister inherited the other half and took her share in cash, paying taxes on all of her half. Later in 2012, I transferred my half of the TIRA — approximately $43,500 — to a new custodian, Vanguard, as a beneficiary IRA. Took RMD as required at end of 2013 and end of 2014 as transfers into a taxable fund at Vanguard. Asked Vanguard to withhold 10% federal income tax and minimum-plus-14.50% state tax

Anyway, don’t know what to enter and can’t remember what I did for tax year 2013, but I don’t remember seeing this alert then. My father was not a good record keeper and I have no idea what his cost basis was But it is very likely he made no deductible contributions (he had a government pension).

Any help would be appreciated,
Ed

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Permalink Submitted by Alan - IRA critic on Tue, 2015-04-14 03:14

To determine if you inherited any basis in his IRA, you might check some of his last tax returns. If he was taking RMDs and had a basis, a Form 8606 would be included with his return and line 14 of that form would show the amount of basis remaining for future years. You would have inherited 50% of that basis, and would add Form 8606 to your return to calculate the taxable amount of your RMDs. If you cannot find any evidence of basis, then you must assume there is no basis. Most IRAs do not have basis. If he had his taxes done professionally, after the dust settles later this week, you might check with his preparer to see if the preparer’s software indicates any basis in your father’s IRA.
If you find that you DID inherit basis, you could amend your 2013 return to apply that basis. If you do not want to amend 2013, you must figure the amount of basis you WOULD HAVE applied in 2013 and reduce your current basis by that amount.
Never combine inherited IRA basis with basis you may have in your own IRA. If you had basis in your own IRA, that would require a separate 8606, and the 8606 for the inherited IRA would have to be labeled as applying to the inherited IRA.