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Get your taxes done using TurboTax
1. The pro-rata rule.
When you have "basis" (i.e. after-tax contributions) in your IRA, this basis is returned to you in distributions over time according to the pro-rate rule. This is important because basis that is returned to you in a distribution is not taxable (having been taxed already once). So when you have an IRA distribution, you take the amount of basis in your IRA and divide it by the total amount in the IRA to get a percentage amount, that you apply to the distribution. So, $1,000 in basis and $10,000 in total assets in the IRA, means that 10% of your distributions is nontaxable.
NOTE: the denominator above ($10,000) should actually be the sum of all your traditional IRA, SEP, and SIMPLE IRA accounts.
2. "When I enter the total IRA end of year my taxes go up."
As you can see, entering the total of your IRAs changes the pro-rata calculation above. The larger the denominator is, the more of the IRA distribution will be taxable income, so it makes sense that your tax will increase.
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