@sdarora wrote:
Still not following. Too complicated to understand, and what is "basis"?
But doesn't look like that is true.
Basically "basis", "after-tax money" and "non-deductible contribution" all describe the same thing. When you make a Traditional IRA contribution, you can choose to deduct it from your taxable income (which will usually lower the tax or increase the refund) or choose not to deduct it. Some times because of income limits you are not allowed to deduct it.
In either case, that means that the contribution that was not deducted has already had the tax paid on it since you did not deduct it, so when withdrawn that "after-tax" (basis) will not be taxed again. But as I posted earlier in this thread, you can NEVER ONLY withdraw that after-tax basis. It must always be prorated between the current distribution and the aggregate total of all IRA accounts. In your case, since your current distribution is only a small portion of the total IRA value, then only a small portion of the after-tax basis can be applied to reduce the tax on the distribution.
You can see that calculation on lines 6-15 on the 8606 form that will be part of your tax return.
**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.**
