Calculation of the non-taxable portion of an IRA distribution due to a basis in the IRA has little bearing upon the percentage of the IRA funding with pre-tax dollars. Form 8606 guides the calculations, and the balance of unrecovered taxed contributions from the the prior tax year is applied. Generally, distributions (RMDs and Roth conversions, but not tax-free rollovers) are added to the year-end value (V) of all IRAs to determine the total value of the IRAs. Subtracting the unrecovered taxed contributions (U) from that total yields the accumulated earnings (A) of your IRAs due to taxed and non-taxed contributions. The ratio of the unrecovered taxed contributions to the accumulated earnings (U/A) establishes the fraction of the earnings due to the taxed contributions. Multiplying that ratio (U/A) times the amount of the distribution (D) determines the non-taxable portion of the distribution.
As an example, consider that your first RMD has occurred, your pre-tax contributions were $95,000 and your after tax (taxed) contributions (U) were $5000. That conforms to your 95% and 5% funding relationship. Further consider that the year-end value (V) of your IRAs happens to be $900,000 and for an age factor of 27.40 applied to the prior year-end value of $880,000 the RMD (D) is $880,000 /27.40 = $32,117. The total value of your IRAs for the year of distribution is V + D = 900,000 + 32,117 = 932,117. Then accumulated earnings A = V + D - U = 932,117 - 5000 = 927,117. The ratio of U to A is U/A = 0.0054 (rounded to 4 decimal places). Finally, (U/A) * D = 0.0054 * 32,117 = 173 (rounded to 0 decimal places), and is the untaxed portion of your RMD. The taxable portion then becomes D - (U/A) * D = 32,117 - 173 = 31,944.
It is helpful to understand the underlying calculations when one uses the step-by-step procedures to enter your data.
