TaxGuyBill
Level 15

I see what is going on now.

On the 1099-R worksheet, scroll about 1/2 way down and click the "Quickzoom" for the "Quickzoom to enter traditional IRA basis".

On the sheet that opens up (the "IRA Info Wks"), go down a few lines to Line 18.  Enter the $601,200 on that line.

 

What is going on is that the $5000 contribution adds some Basis to the IRA.  That means part of the IRA withdrawal is not taxable, which reduces the MAGI for the Premium Tax Credit. 

But until you add the $601,200 to Line 18 of the IRA Info Wks, it is incorrectly treating the entire $5000 as a full Basis of the withdrawal (effectively resulting in $5000 less income).  When you enter the $601,200 to Line 18, it will properly prorate the $5000 of Basis.  It will still slightly reduce the taxable income, but not enough to qualify for the credit.

That is an interesting situation that I hadn't thought of before.  If they had no other IRAs (the $601,200 was not there), that would a method that would have worked to qualify for the credit.

 

I suspect that @rbynaker  would find this interesting too.

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