Deductions & credits

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@168kenn wrote:

Thank you for your response, it's very comprehensive. There is one part I don't understand. The calculation of my 2019 RMD was based on my IRA balance at 12/31/18. I'm now preparing my 2019 taxed and have to pay tax on the RMD some of which is after-tax dollars. Why does the math require my 2019 ending balance? That impacts my 2020 RMD. 

 

My question is the same for the Roth rollover, I need to pay the 2019 tax on the rollover some of the amount includes after-tax dollars. Again, why does the math require my 2019 ending balance? I have to pay tax on the rollover amount in 2019?

 

Thank you

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The 2019 RMD calculation has nothing to do with the taxable/non-taxable amount of the distribution that is based on the *2019* year end balance.  Your IRA account trustee (or you) calculate the RMD using the 2018 value. 

The year end value is require to calculate the non-deductible basis between the 2019 distribution and remaining IRA value to be applied to future distributions.

You can NEVER withdraw ONLY the nondeductible part - it must be prorated over the entire year end value of ALL Traditional IRA accounts which include SEP and SIMPLE IRA's. (For tax purposes you only have ONE Traditional IRA which can be split between as many different accounts as you want, but for tax purposes they are all added together).

For example using rough figures: if you had $60K of nondeductible contributions in an IRA with a total value of $600K (10:1 ratio), then when you take a $60K distribution from any IRA account $6,000 would be nontaxable and $54,000 would be taxable (same 10:1 ratio) , with the remaining $54K of basis staying in the IRA for future distributions. As long as there is any money in the IRA, there will be some basis.

TurboTax will ask for your non-deductible "basis" and then the *Total Value* of *all* Traditional IRA, SEP and SIMPLE accounts as of Dec 31, of the tax year. That is so the prorating of the basis can be properly proportioned between the current years distribution and the remaining IRA value. That is done on the 8606 form.