Disbursement of Post-tax Traditional IRA Contribution

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In 2016 I contributed a few thousand dollars to a Traditional IRA. Since my income is above the limit, the contribution was "post-tax" money, and I did not claim any deductions on my taxes for that year. Now, I want to withdraw this post-tax contribution. FYI, there was no intermixing of pre-tax and post-tax contributions since I only made one contribution, which was post-tax.

Questions:

I don't have to pay any taxes or penalties on the disbursement of post-tax funds contributed to a traditional IRA, do I?
If there was any interest earned on the contribution, can I avoid tax complications by simply withdrawing only the original contribution amount, and leaving any gains in the IRA?

IRA

D

dmertzAnswer

Level 15

I'll answer your questions in reverse order:

2. You cannot distribute just your basis in nondeductible traditional IRA contributions (unless your traditional IRAs consist of nothing but basis). If the total value of all of your IRAs at year-end plus the amount of your distribution during the year is more than your basis in nondeductible traditional IRA contributions, as would typically be the case if your IRA investments gained in value, the distribution is a proportional mix of basis (nontaxable) and non-basis (taxable). See Form 8606 Part I for the calculation of the taxable and nontaxable amounts.

1. The nontaxable portion of your distribution is also not subject to any early-distribution penalty. The taxable portion of the distribution is subject to ordinary income tax and to an early-distribution penalty unless you have a penalty exception that applies.

Also, you are required to file Form 8606 for the year of the contribution to report any nondeductible contributions made. If you made a nondeductible contribution that you did not report, you'll need to late-file the Form 8606 for that year (late if for a year before 2018). Late-filed Form 8606 may be subject to a $50 late-filing penalty.

D

dmertzAnswer

Level 15

I'll answer your questions in reverse order:

2. You cannot distribute just your basis in nondeductible traditional IRA contributions (unless your traditional IRAs consist of nothing but basis). If the total value of all of your IRAs at year-end plus the amount of your distribution during the year is more than your basis in nondeductible traditional IRA contributions, as would typically be the case if your IRA investments gained in value, the distribution is a proportional mix of basis (nontaxable) and non-basis (taxable). See Form 8606 Part I for the calculation of the taxable and nontaxable amounts.

1. The nontaxable portion of your distribution is also not subject to any early-distribution penalty. The taxable portion of the distribution is subject to ordinary income tax and to an early-distribution penalty unless you have a penalty exception that applies.

Also, you are required to file Form 8606 for the year of the contribution to report any nondeductible contributions made. If you made a nondeductible contribution that you did not report, you'll need to late-file the Form 8606 for that year (late if for a year before 2018). Late-filed Form 8606 may be subject to a $50 late-filing penalty.