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Retirement tax questions
Yes, if you funded your Traditional IRA with after tax contributions, then any distribution will take will have two components: 1) the cost basis, and 2) the increase in value of funds. Lets say you make after tax (non-deductible) contributions to a traditional IRA over the years of $25,000, and the account balance grows to $100,000. If that is the only traditional IRA you have, then a distribution from that IRA would be 25% non-taxable return of basis, and 75% taxable growth. However, if you have another traditional IRA, it must also be included in your calculation of the taxable and non-taxable amounts. If, in addition to the $100,000 IRA previously discussed you have another IRA with $100,000, and that IRA is a 401(k) rollover that was 100% funded by pre-tax contributions. Your distribution from the IRA funded with after-tax contributions will be 12.5% non-taxable and 87.5% taxable.
The taxable vs non-taxable portion of your IRA distributions are calculated on Form 8606. Every after-tax contribution to your IRA should have been reported on a Form 8606 and filed with your tax return for that year. The information on the 8606 rolls forward each year and has the cumulative after-tax contributions that you made. If you haven't been preparing and filing Forms 8606 each year, the you need to complete one for 2024 and add the cumulative after -tax contributions.
After you enter all of your Forms 1099-R, there will be some additional questions. One of these is "Any Nondeductible Contributions to Your IRA?" Mark the "Yes" button and Continue. The next screen says "Let's Find Your IRA Basis". You will be prompted to enter the amount of your IRA total basis which will be on your 2023 Form 8606 if you have been filing and rolling forward Form 8606 each year. If your 2023 tax return doesn't include Form 8606, click on the EasyGuide to enter your cost basis and generate a Form 8606 for your return.
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