@PianoMan12 wrote:
Based on the lack of co-mingling of any of the pre/post tax funds at any time, I would assume that the 50K is 100% taxable while the 6K should sail through with no taxes. Am I right? If I'm correct, how do I handle it in Turbo Tax to have the 50K taxed and the 6K not be taxed instead of having it apply the pro-rate formula?
Unfortunately you are incorrect. For Tax purposed you only have ONE Traditional IRA that is the aggregate total of any Traditional, SEP or SIMPLE IRA account that might exist.
Non-deductible "basis" in ANY such IRA account applies to the combined total of all accounts.
That is why a "backdoor Roth will not work if you have ANY Traditional IRA value at years end.
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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.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
