Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

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letsgobobby
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Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Thu May 03, 2018 11:07 pm

If they ever have to do more than one Form 8606 (ie, inherited IRAs from more than one decedent; backdoor Roth IRAs; their own IRA with basis; etc) they will not be able to use e-file with any publicly available tax prep software. Best case scenario they will have to complete some of the 8606s by hand, then print and paper file; worst case scenario they will have to do almost the entirety of their return by hand, including paper file. Or they could pay a professional a few hundred dollars to handle their return which they otherwise would have done for $20 with tax software.

Remember, your non-spouse heirs cannot convert their inherited TIRA to a Roth; and cannot combine the inherited IRA with their own IRAs. Barring a major tax rate differential, it seems wiser for the decedent to have converted the TIRA to a Roth before death (granted, not everyone gets that chance...).

Hope this helps someone, some day.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by MrPotatoHead » Thu May 03, 2018 11:44 pm

Uh, I do all my returns by hand, in paper and pencil. And I have to file income tax in multiple states. Really, it is no big deal. Ad my 4 children all < 25 do theirs by hand also.

Your other points are well taken.

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celia
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by celia » Thu May 03, 2018 11:51 pm

For what it's worth, since most people don't carry a basis in their tIRA, I suspect most heirs either withdraw all the money when they get it, don't know there is a basis, or forget about it and pay taxes on the whole withdrawal. In fact, it only takes one year to change tax preparers and if they don't look for any basis on the previous year return and the taxpayer doesn't mention it, they will prepare the return without any basis. If they import the return the following year, they will no longer have any basis to report.

Those sophisticated enough to know about basis in tIRAs probably already live in Boglehead-land. As an example, many tax preparers don't even understand how to report a simple backdoor Roth as they aren't common in the general population.

letsgobobby
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Fri May 04, 2018 7:31 am

MrPotatoHead wrote:
Thu May 03, 2018 11:44 pm
Uh, I do all my returns by hand, in paper and pencil. And I have to file income tax in multiple states. Really, it is no big deal. Ad my 4 children all < 25 do theirs by hand also.

Your other points are well taken.
Wisdom and practicality of doing one's taxes by hand likely depends on complexity of return and one's threshold for pain. My limit was Form 1116 and the Russian nesting doll of forms within worksheets within forms within worksheets.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by NotWhoYouThink » Fri May 04, 2018 7:47 am

Don't tell anyone, but the IRA DH inherited from FIL probably had about 1% of the value as basis, but I've ignored that the last 2 years on our taxes.

As part of FIL's older tax files I've seen an 8606 showing some basis in the account. But the executor and CPA that handled the estate, and the brokerage that held and divided the account among the siblings, never told us about the basis so I haven't pressed it. It's one more thing on a long list of things that the executor should have taken care of but did not, and was not worth the time and trouble of educating the executor about tax law so that he understood what basis is and why he should make sure we knew about it.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by dodecahedron » Fri May 04, 2018 7:56 am

Every TIRA has basis. It is just that the basis is often zero. The IRS has stated that it is generally acceptable to use zero as a basis even if the true basis is not zero.

Also, non-spouse heirs might be charities, who don't need to care about basis.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by welderwannabe » Fri May 04, 2018 7:59 am

dodecahedron wrote:
Fri May 04, 2018 7:56 am
The IRS has stated that it is generally acceptable to use zero as a basis even if the true basis is not zero.
I bet they would love it if everyone did that.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Fri May 04, 2018 8:17 am

dodecahedron wrote:
Fri May 04, 2018 7:56 am
Every TIRA has basis. It is just that the basis is often zero. The IRS has stated that it is generally acceptable to use zero as a basis even if the true basis is not zero.
Too bad they don't "generally accept" the other way around.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by House Blend » Fri May 04, 2018 8:25 am

I would use a broader brush:

Don't make non-deductible contributions to an IRA unless a Roth conversion is on the horizon.

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dodecahedron
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by dodecahedron » Fri May 04, 2018 8:26 am

Despite what I said above, yeah, I do have to concede that a significant basis is worth tracking and that it can be a pain to do so.

I have not had to deal with TIRA basis, but I do recall the annoyances of dealing with basis on gifted securities in the past. It was annoying. I remember telling my husband we should donate existing equities in taxable to charity and that future equities had to go into our retirement plans (including a large Roth) because I just didn't want to deal with tracking basis of many purchases over many years. He agreed.

But now that taxable account custodians track basis, I am willing to hold equities in taxable again. Unfortunately TIRA custodians have no way to track basis.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by jebmke » Fri May 04, 2018 8:41 am

dodecahedron wrote:
Fri May 04, 2018 8:26 am
I do have to concede that a significant basis is worth tracking and that it can be a pain to do so.
That has not been my experience. I have had a basis in my IRA for years and the software handles it quite easily including ROTH conversions and recharacterization.

I also seem to recall a practice problem in our TaxAide training that had multiple IRAs (one inherited) with basis in each and the software handled the multiple 8606 forms without a problem [edit: it may have been a spousal IRA]. I don't know if it would have e-filed but a paper return is only slightly more of a hassle than e-filing.
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Fri May 04, 2018 8:51 am

jebmke wrote:
Fri May 04, 2018 8:41 am
dodecahedron wrote:
Fri May 04, 2018 8:26 am
I do have to concede that a significant basis is worth tracking and that it can be a pain to do so.
That has not been my experience. I have had a basis in my IRA for years and the software handles it quite easily including ROTH conversions and recharacterization.

I also seem to recall a practice problem in our TaxAide training that had multiple IRAs (one inherited) with basis in each and the software handled the multiple 8606 forms without a problem [edit: it may have been a spousal IRA]. I don't know if it would have e-filed but a paper return is only slightly more of a hassle than e-filing.
some have reported that Turbotax only requires you print out and paper file with any inherited IRA with basis but at least it makes a provision for those situations. Taxact cannot recognize the simultaneous existence of an inherited IRA with basis and an inherited IRA without basis and thus requies you basically do your entire return by hand. Non spousal inherited IRAs are certainly easier to manage given their gerater flexibiility unde IRS rules.

Since 2006 we’ve easily fulfilled the requirement of filing 8606 for our backdoor Roth IRAs but the inherited IRA with basis is a whole new ballgame.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by JoMoney » Fri May 04, 2018 8:57 am

dodecahedron wrote:
Fri May 04, 2018 7:56 am
... The IRS has stated that it is generally acceptable to use zero as a basis even if the true basis is not zero...
Do you have a reference for this?


EDIT:
Well I found this, https://ttlc.intuit.com/questions/4155255 , and I guess it makes sense since it's in the IRS favor, but I'd like to see something from a more authoritative source
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by Epsilon Delta » Fri May 04, 2018 9:34 am

I offer my services as a heir to anybody who has a TIRA with basis.

Feel free to hate me if you like, although it is not necessary.


Required non-random smilies: :twisted: :shock: :beer

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by Spirit Rider » Fri May 04, 2018 10:36 am

In the only related guidance I am aware of. The IRS has stated that owner-only small businesses must take all deductions they are entitled to. Lest they derive a benefit they are not entitled to, e.g. earned income tax credit, retirement plan contributiofitns, etc...

I could see that guidance extending to individual taxpayers and basis. Failure to apply basis would also be considered artificially increasing income. If the taxpayer derives a benefit from that income increase it would be improper.

Many tax provisions are based on AGI/MAGI with the vast majority causing your tax liability increasing with an increase in AGI/MAGI. The only two exceptions I can think of are; increasing your MAGI so that you qualify for ACA subsidies and cost sharing, The new 20% pass-thru deduction is limited to taxable income. If you are limited, increasing taxable income increases the deduction. Can anybody else think of any others.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by MP123 » Fri May 04, 2018 12:15 pm

Spirit Rider wrote:
Fri May 04, 2018 10:36 am
Many tax provisions are based on AGI/MAGI with the vast majority causing your tax liability increasing with an increase in AGI/MAGI. The only two exceptions I can think of are; increasing your MAGI so that you qualify for ACA subsidies and cost sharing, The new 20% pass-thru deduction is limited to taxable income. If you are limited, increasing taxable income increases the deduction. Can anybody else think of any others.
Cases where overstating MAGI might benefit a taxpayer inappropriately?

ACA minimum income qualification as you point out would be a big one. Support test for a dependent that didn't want to be dependent for whatever reason might be another. Some states allow a deduction for federal taxes paid and I suppose it's possible that a higher federal tax bill might be advantageous at a state level but that's probably a long shot.

Of course retirement plan contribution limits and self employed health insurance deductibility if they were self employed.

Hard to say whether the benefit outweighs the increased tax burden on most of those. Being able to qualify for ACA rather than Medicaid (especially in non-expansion states) is the most clear cut I think.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by Engineer250 » Fri May 04, 2018 12:28 pm

dodecahedron wrote:
Fri May 04, 2018 7:56 am
Also, non-spouse heirs might be charities, who don't need to care about basis.
This. :sharebeer
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by FinancialDave » Fri May 04, 2018 1:59 pm

Epsilon Delta wrote:
Fri May 04, 2018 9:34 am
I offer my services as a heir to anybody who has a TIRA with basis.

Feel free to hate me if you like, although it is not necessary.
I'll second that!

:sharebeer

In fact if it helps the cause I will agree to ignore the basis!
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Fri May 04, 2018 2:18 pm

The inherited IRA with basis is quite small. In fact its size is irrelevant, even a very small IRA with a very small amount of basis creates the nightmare. TT users apparently have it easier but still must paper file if they have any other IRA with basis, such as a backdoor Roth.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by dodecahedron » Fri May 04, 2018 4:38 pm

JoMoney wrote:
Fri May 04, 2018 8:57 am
dodecahedron wrote:
Fri May 04, 2018 7:56 am
... The IRS has stated that it is generally acceptable to use zero as a basis even if the true basis is not zero...
Do you have a reference for this?


EDIT:
Well I found this, https://ttlc.intuit.com/questions/4155255 , and I guess it makes sense since it's in the IRS favor, but I'd like to see something from a more authoritative source
The IRS working assumption in audits is that basis is zero unless the taxpayer (TP) has evidence otherwise. Tax Court opinions have said that the burden of proof for a nonzero basis is on the TP. In the absence of such evidence provided by the TP, Tax Court has ruled that the basis is zero.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by grok87 » Fri May 04, 2018 4:58 pm

House Blend wrote:
Fri May 04, 2018 8:25 am
I would use a broader brush:

Don't make non-deductible contributions to an IRA unless a Roth conversion is on the horizon.
+1
Keep calm and Boglehead on. KCBO.

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JoMoney
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by JoMoney » Fri May 04, 2018 5:02 pm

dodecahedron wrote:
Fri May 04, 2018 4:38 pm
JoMoney wrote:
Fri May 04, 2018 8:57 am
dodecahedron wrote:
Fri May 04, 2018 7:56 am
... The IRS has stated that it is generally acceptable to use zero as a basis even if the true basis is not zero...
Do you have a reference for this?


EDIT:
Well I found this, https://ttlc.intuit.com/questions/4155255 , and I guess it makes sense since it's in the IRS favor, but I'd like to see something from a more authoritative source
The IRS working assumption in audits is that basis is zero unless the taxpayer (TP) has evidence otherwise. Tax Court opinions have said that the burden of proof for a nonzero basis is on the TP. In the absence of such evidence provided by the TP, Tax Court has ruled that the basis is zero.
I guess this might be applicable case
http://www.legalbitstream.com/scripts/i ... d1b4/1/doc
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dodecahedron
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by dodecahedron » Fri May 04, 2018 5:25 pm

JoMoney wrote:
Fri May 04, 2018 5:02 pm
dodecahedron wrote:
Fri May 04, 2018 4:38 pm
JoMoney wrote:
Fri May 04, 2018 8:57 am
dodecahedron wrote:
Fri May 04, 2018 7:56 am
... The IRS has stated that it is generally acceptable to use zero as a basis even if the true basis is not zero...
Do you have a reference for this?


EDIT:
Well I found this, https://ttlc.intuit.com/questions/4155255 , and I guess it makes sense since it's in the IRS favor, but I'd like to see something from a more authoritative source
The IRS working assumption in audits is that basis is zero unless the taxpayer (TP) has evidence otherwise. Tax Court opinions have said that the burden of proof for a nonzero basis is on the TP. In the absence of such evidence provided by the TP, Tax Court has ruled that the basis is zero.
I guess this might be applicable case
http://www.legalbitstream.com/scripts/i ... d1b4/1/doc
Good example of the case law I was referring to.

There was comprehensive legal scholarship by Prof Jim Maule on this issue in a 2007 article here. Note that the only potential problem areas in that paper involved computation of self-employment income, but basis of an IRA does not affect that item at all.

Article was written prior to ACA, but to my knowledge the Tax Court has not yet ruled on any cases where a TP used a zero basis in order to raise MAGI for that particular purpose.

Except possibly in the relatively narrow set of cases where the TP might gain an ACA advantage from use of zero basis, there is generally solid support for use of zero basis if it is more convenient for the TP.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by jebmke » Fri May 04, 2018 5:33 pm

dodecahedron wrote:
Fri May 04, 2018 5:25 pm
There was comprehensive legal scholarship by Prof Jim Maule on this issue in a 2007 article here. Note that the only potential problem areas in that paper involved computation of self-employment income, but basis of an IRA does not affect that item at all.
This comes up almost every year when I am instructing TaxAide volunteers. The question typically arises around self-employment income and the question as to whether we can allow a TP to file without certain deductions on Schedule C that would otherwise be out of scope for us.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by dodecahedron » Fri May 04, 2018 5:40 pm

jebmke wrote:
Fri May 04, 2018 5:33 pm
dodecahedron wrote:
Fri May 04, 2018 5:25 pm
There was comprehensive legal scholarship by Prof Jim Maule on this issue in a 2007 article here. Note that the only potential problem areas in that paper involved computation of self-employment income, but basis of an IRA does not affect that item at all.
This comes up almost every year when I am instructing TaxAide volunteers. The question typically arises around self-employment income and the question as to whether we can allow a TP to file without certain deductions on Schedule C that would otherwise be out of scope for us.
Yes, absolutely, the law clearly requires that all applicable deductions be taken on a Sched C for computing self-employment income for the population in the income brackets typically using tax assistance sites. That is a big issue highlighted for VITA and AARP up here in NY as well.

But cost basis on an IRA (inherited or otherwise) is not a Sched C deduction.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by MnD » Fri May 04, 2018 6:24 pm

letsgobobby wrote:
Thu May 03, 2018 11:07 pm
Remember, your non-spouse heirs cannot convert their inherited TIRA to a Roth; and cannot combine the inherited IRA with their own IRAs. Barring a major tax rate differential, it seems wiser for the decedent to have converted the TIRA to a Roth before death (granted, not everyone gets that chance...).
I love my inherited IRA! The scenario of multiple inherited IRA's with non-zero basis does sound like a nuisance, but the odds of that are pretty slim. I've learned a lot over 18 years or so with an inherited tIRA about RMD's, the growth of accounts even where you are drawing on it annually, sequence of return risk (inherited in 2000 - yikes!), transferring assets to future generations with positions intact, managing approaches to an annual cash withdrawal etc.

My parents passed away in 1990 and 2000 but i always toast them and say thanks Mom and Dad when the cash comes out. We've used it for lots of things - college bills, to fund a spousal IRA when on one income, just plain spending, savings etc. It's not a huge sum but its like a little money tree with an always welcome annual harvest.

It taught me two decades ahead of retirement that you can have your cake and eat it too. I've seen where many all-cash and liquid inheritances get spent almost immediately. On the flip side, I read posts here where people have built money mountains for their whole lives and say that many years into retirement they have never spent a dime of it. Both situations seem a bit unfortunate. Tending to an inherited IRA has shown me the middle ground. Cumulatively it's spun off a lot of useable income and yet the the balance is much higher than when inherited and many multiples more than the 2002 "bottom" not long after inheritance. :beer

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by Spirit Rider » Fri May 04, 2018 7:10 pm

The sad reality is that a significant number of Americans squander their inheritances immediately including retirement accounts. In fact the retirements accounts can put them in untenable positions. They blow an Inherited IRA not realizing the distributions were taxable. When the tax bill becomes due they end up with a negative savings rate.

Sometimes we forget that a large segment of the population is not financial literate. Luckily, I was already reading the Bogleheads Unite forum on Morningstar. So I knew exactly what to do. I have known people who took a full distribution and then were shocked to learn they couldn't roll part of it over.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by FinancialDave » Fri May 04, 2018 11:44 pm

jebmke wrote:
Fri May 04, 2018 5:33 pm
dodecahedron wrote:
Fri May 04, 2018 5:25 pm
There was comprehensive legal scholarship by Prof Jim Maule on this issue in a 2007 article here. Note that the only potential problem areas in that paper involved computation of self-employment income, but basis of an IRA does not affect that item at all.
This comes up almost every year when I am instructing TaxAide volunteers. The question typically arises around self-employment income and the question as to whether we can allow a TP to file without certain deductions on Schedule C that would otherwise be out of scope for us.
We face the same problem out west as well. A recent problem for us are SE individuals that put a lot of miles on their car. When they find those miles put them over the $25k expense limit for Sch C under AARP, which makes it out of scope, then they want us to not claim them, which is strictly a way to get your site shut down if you willing fall into that trap.

The other bigger issue are people trying to "play" the earned income credit by reporting just enough income to get a big pay check back. This could certainly happen if someone doesn't report all their deductions on Sch C.

All of the above is off topic, so let me get back on by saying the same logic that applies to the basis of an inherited IRA, applies to the basis of any asset - real estate or individual stock. If there is no record it is up to the taxpayer to be able to claim something other than zero. Early on I sometimes spent an hour(s) trying to reconstruct the basis, only to realize it made absolutely no difference to the taxable income, because the person would have no taxable income even with zero basis.
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by michaeljc70 » Sat May 05, 2018 9:55 am

My basis is so small that I wonder if it will even be worth using. It represents less than 1% of the valueof my IRA like the poster above. Given inflation, it seems smaller every year. It is just under $6k and I last filed the form in 2001.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Sat May 05, 2018 10:04 am

michaeljc70 wrote:
Sat May 05, 2018 9:55 am
My basis is so small that I wonder if it will even be worth using. It represents less than 1% of the valueof my IRA like the poster above. Given inflation, it seems smaller every year. It is just under $6k and I last filed the form in 2001.
how can you get rid of it?

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by michaeljc70 » Sat May 05, 2018 10:15 am

letsgobobby wrote:
Sat May 05, 2018 10:04 am
michaeljc70 wrote:
Sat May 05, 2018 9:55 am
My basis is so small that I wonder if it will even be worth using. It represents less than 1% of the valueof my IRA like the poster above. Given inflation, it seems smaller every year. It is just under $6k and I last filed the form in 2001.
how can you get rid of it?
I'm going to do Roth conversions when I retire early, but I don't think I will get it all converted. That will leave even less basis to bother with.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Sat May 05, 2018 10:43 am

I believe each of your Roth conversions has to be prorated, so you can never get rid of the basis unless you convert your entire IRA, or roll in the untaxed portion to a 401k or other similar plan.

And really any basis, even $10, creates the same problem as a larger basis. It still creates the need for paper filing if the heir has to file an 8606 of his own. Although at some small point, it likely makes more sense for the heir to just ignore the basis, even though it means the decedent and heir have paid double taxes on that amount.

As someone wrote upthread, this is a good argument against ever making non-deductible contributions to an IRA unless there are imminent plans to convert all of the basis to a Roth.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by zaboomafoozarg » Sat May 05, 2018 10:48 am

MrPotatoHead wrote:
Thu May 03, 2018 11:44 pm
Uh, I do all my returns by hand, in paper and pencil. And I have to file income tax in multiple states. Really, it is no big deal. Ad my 4 children all < 25 do theirs by hand also.
Congratulations, I guess?

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by wrongfunds » Sat May 05, 2018 10:52 am

What is that expression? "don't look a gift horse in the mouth"? Isn't this applicable here?

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by michaeljc70 » Sat May 05, 2018 10:56 am

wrongfunds wrote:
Sat May 05, 2018 10:52 am
What is that expression? "don't look a gift horse in the mouth"? Isn't this applicable here?
As they say, nothing is free....

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Sat May 05, 2018 11:49 am

michaeljc70 wrote:
Sat May 05, 2018 10:56 am
wrongfunds wrote:
Sat May 05, 2018 10:52 am
What is that expression? "don't look a gift horse in the mouth"? Isn't this applicable here?
As they say, nothing is free....
Literally the cost to step up to a tax professional would be five times greater than the tax paid on the basis, if I elected to ignore it. And my dad would have had a coniption had he known I was paying tax on money he'd already paid tax on once. No easy way out.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by Earl Lemongrab » Sat May 05, 2018 12:41 pm

It's a false dichotomy to present the choices as "efile or do it by hand". You can prepare tax returns with software and then mail the return.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Sat May 05, 2018 1:03 pm

Earl Lemongrab wrote:
Sat May 05, 2018 12:41 pm
It's a false dichotomy to present the choices as "efile or do it by hand". You can prepare tax returns with software and then mail the return.
Not always. My software cannot correctly compute multiple 8606s so it puts incorrect numbers on practically every form.

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Earl Lemongrab
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by Earl Lemongrab » Sat May 05, 2018 1:06 pm

letsgobobby wrote:
Sat May 05, 2018 1:03 pm
Earl Lemongrab wrote:
Sat May 05, 2018 12:41 pm
It's a false dichotomy to present the choices as "efile or do it by hand". You can prepare tax returns with software and then mail the return.
Not always. My software cannot correctly compute multiple 8606s so it puts incorrect numbers on practically every form.
That's a different problem. I'm not familiar enough with various software packages to suggest anything.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Sat May 05, 2018 1:10 pm

Earl Lemongrab wrote:
Sat May 05, 2018 1:06 pm
letsgobobby wrote:
Sat May 05, 2018 1:03 pm
Earl Lemongrab wrote:
Sat May 05, 2018 12:41 pm
It's a false dichotomy to present the choices as "efile or do it by hand". You can prepare tax returns with software and then mail the return.
Not always. My software cannot correctly compute multiple 8606s so it puts incorrect numbers on practically every form.
That's a different problem. I'm not familiar enough with various software packages to suggest anything.
It's a widespread problem, so suggesting someone can just use the software and print the return is a bad suggestion.

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Earl Lemongrab
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by Earl Lemongrab » Sat May 05, 2018 1:15 pm

letsgobobby wrote:
Sat May 05, 2018 1:10 pm
Earl Lemongrab wrote:
Sat May 05, 2018 1:06 pm
letsgobobby wrote:
Sat May 05, 2018 1:03 pm
Not always. My software cannot correctly compute multiple 8606s so it puts incorrect numbers on practically every form.
That's a different problem. I'm not familiar enough with various software packages to suggest anything.
It's a widespread problem, so suggesting someone can just use the software and print the return is a bad suggestion.
Fair enough, and I can't refute without some research, but then the person should have said that. It's still a false dichotomy as presented.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Sat May 05, 2018 1:22 pm

All you have to do is provide evidence of tax prep software that handles this problem. Let me know when you do. Until then, it's presumptuous to say the statement is false. It's important for others to know that your suggestion has not been functional to any individual taxpayer as far as I know.

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Earl Lemongrab
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by Earl Lemongrab » Sat May 05, 2018 1:33 pm

letsgobobby wrote:
Sat May 05, 2018 1:22 pm
All you have to do is provide evidence of tax prep software that handles this problem. Let me know when you do. Until then, it's presumptuous to say the statement is false. It's important for others to know that your suggestion has not been functional to any individual taxpayer as far as I know.
The dichotomy of "efile or do it by hand" is the one in question. As I stated, if the original statement were "use tax software for the return or do it by hand" then that's a different and quite possibly correct dichotomy.

As far as a counter-example, I'm not sure if it's possible to find out because it's not likely a listed feature. Aside from buying and testing candidates.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by CyclingDuo » Sat May 05, 2018 1:50 pm

letsgobobby wrote:
Thu May 03, 2018 11:07 pm
If they ever have to do more than one Form 8606 (ie, inherited IRAs from more than one decedent; backdoor Roth IRAs; their own IRA with basis; etc) they will not be able to use e-file with any publicly available tax prep software. Best case scenario they will have to complete some of the 8606s by hand, then print and paper file; worst case scenario they will have to do almost the entirety of their return by hand, including paper file. Or they could pay a professional a few hundred dollars to handle their return which they otherwise would have done for $20 with tax software.

Remember, your non-spouse heirs cannot convert their inherited TIRA to a Roth; and cannot combine the inherited IRA with their own IRAs. Barring a major tax rate differential, it seems wiser for the decedent to have converted the TIRA to a Roth before death (granted, not everyone gets that chance...).

Hope this helps someone, some day.
This is not a third world problem.

Forget e-file. Print that tall stack of paper out. Seal it up in a manilla envelope. Take it to the Post Office and send it off to the appropriate address.

And then thank the family member who had you as a beneficiary of their money as you drive home from the Post Office. :beer
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Sat May 05, 2018 2:11 pm

:oops:

Repeatedly have stated it is not that simple. The tax software incorrectly combines 8606 basis. It's not that you can't efile; it's that the 1040, along with myriad forms, is wrong. It has to be redone. Nearly my entire return, 27 pages, was wrong.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by wrongfunds » Sat May 05, 2018 7:30 pm

why not donate the whole thing to charity? you would not have to worry about it then at all!

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by Earl Lemongrab » Sat May 05, 2018 8:44 pm

wrongfunds wrote:
Sat May 05, 2018 7:30 pm
why not donate the whole thing to charity? you would not have to worry about it then at all!
Because you might prefer your heirs get the money?
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by letsgobobby » Sat May 05, 2018 8:50 pm

wrongfunds wrote:
Sat May 05, 2018 7:30 pm
why not donate the whole thing to charity? you would not have to worry about it then at all!
Non spouses cannot donate inherited IRAs without first withdrawing the funds. I think. Otherwise a great idea.

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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by MrPotatoHead » Sat May 05, 2018 11:39 pm

zaboomafoozarg wrote:
Sat May 05, 2018 10:48 am
MrPotatoHead wrote:
Thu May 03, 2018 11:44 pm
Uh, I do all my returns by hand, in paper and pencil. And I have to file income tax in multiple states. Really, it is no big deal. Ad my 4 children all < 25 do theirs by hand also.
Congratulations, I guess?
LOL.

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Earl Lemongrab
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Re: Don't leave your non-spouse heirs TIRAs with basis, unless you hate them!

Post by Earl Lemongrab » Sat May 05, 2018 11:41 pm

letsgobobby wrote:
Sat May 05, 2018 8:50 pm
wrongfunds wrote:
Sat May 05, 2018 7:30 pm
why not donate the whole thing to charity? you would not have to worry about it then at all!
Non spouses cannot donate inherited IRAs without first withdrawing the funds. I think. Otherwise a great idea.
Oh, I read it as the OP leaving it to charity instead of to beneficiaries. Now I'm not sure.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

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