Deducting after-tax contributions from ira distribution

[fredfrazier]

In 2017 I rolled over my employer 401k into an IRA. The 401k included after-tax contributions of approximately $9K, and the 2017 1099-R for the rollover shows this after tax amount in Box 5. In 2019, I received a $30k distribution from the IRA. I would like to reduce the taxable amount of this distribution by the after-tax contributions reported on the 2017 1099-R. What 2019 form(s) do I need to report this reduced taxable amount?

[dmertz · Accepted solution]

Presumably you received no traditional IRA distributions in 2017 or 2018.

After entering the 2019 Form 1099-R for the distribution from the traditional IRA:

1. Click the Continue button on the Your 1099-R Entries page.
2. When asked, answer Yes, you made and tracked nondeductible contributions to your traditional IRA.
3. Click the EasyGuide button on the page that follows.
4. Proceed and mark the box indicating that you transferred money from an employer's retirement plan in 2019 or a previous year.
5. Enter the amount shown in box 5 of your 2017 Form 1099-R reporting the distribution from the 401(k).
6. Enter an explanation of this adjustment to your basis in nondeductible traditional IRA contributions, that this adjustment is for after-tax basis rolled over from your 401(k).
7. Assuming that you made no nondeductible contributions directly to your traditional IRAs, leave your IRA Basis on December 31, 2018 (that would otherwise come from line 14 of your previously filed Form 8606) blank.

TurboTax will include the basis adjustment on line 2 of your 2019 Form 8606 and will include the explanation statement in your filed tax return.

[fredfrazier]

Thank you for the detailed, step-by-step instructions.

Your assumption is correct - no traditional IRA distributions in 2017 or 2018.

I performed  steps 1 through 7 as you described, and the taxable amount of my 2019 distribution was reduced by the full amount of the amount shown in box 5 of the 2017 1099-R. This is what I had hoped for, but is that what is expected? I'm concerned that on form 8606-T, line six (value of all IRAs as of 12/31/1019) is blank. HAve I overlooked something?

[dmertz]

After clicking the continue button on the Your 1099-R Entries, when asked you must also enter your December 31, 2019 balance in traditional IRA contributions.

Note that if you made any nondeductible traditional IRA contributions in 2019, TurboTax will probably use Worksheet 1-1 from IRS Pub 590-B to calculate the taxable amount, leave lines 6 through 12 of Form 8606 blank and will put an asterisk on lines 13 and 15 with the explanation for the asterisk below line 15.

If you are using the CD/download version of TurboTax or you have downloaded the pdf of your tax return with all worksheets, you can examine line 18 of the IRA Information Worksheet to see that it shows your year-end balance.