Retirement tax questions

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@TaxNov wrote:

I converted $104,000 from my traditional IRA into a Roth IRA in 2020.  After I entered the information from my 1099-R in this regard, Turbo Tax asked me to provide the total value of my traditional IRA's as of December 31, 2020, and states that this information is sent by mail on form 5498. 

 

However, Form 5498 does not provide the value of my traditional IRA's, because Form 5498 only captures contribution information, and I did not make any contributions into my traditional IRA's in 2020. The total value of my traditional IRA's would be challenging to gather as I have traditional IRA's at various financial institutions, and multiple traditional IRA's as certain institutions, and I do not get end of year statements from some of them.  Why does Turbo Tax ask me the total value of my traditional IRA's as of December 31, 2020?  

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Because if your IRA contains any non-deductible "basis" it must be prorated between the current distribution and ALL existing Traditional, SEP.and SIMPLE IRA's that existed as of Dec 31, 2020.   It is required by law.

Each such account should be providing a year end statements that has the year end value on it.    5498 forms are not necessary.

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You can NEVER withdraw ONLY the nondeductible part - it must be prorated over the entire 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.