Distributions From IRA

[Randy in Dallas]

How do I calculate my IRA basis if I have multiple IRAs, have made some deductible and some non-deductible contributions in prior years, and have taken partial distribution(s) from one or more IRAs last year. Need this to be able to calculate the portion of my 2021 IRA distributions that are taxable.

[DanaB27]

You should have filed Form 8606 when you made nondeductible contributions. If you did you should be able to look up the basis on a prior return on Form 8606 (line 14). 

You stated that you haven't taken any distributions prior to 2021, therefore you can add all nondeductible amounts to calculate your basis.

[Randy in Dallas]

Actually, my initial query said that I HAVE taken partial distributions from one or more of my IRAs in prior years. Some of those IRAs were funded partially with deductible contributions and partially with non-deductible contributions.  So, is my new (adjusted) IRA basis the previous basis minus the portion of prior DISTRIBUTIONS that weren't taxable on last year's form 1040?

[FangxiaL · Accepted solution]

Yes, your new basis in your IRA accounts is the previous basis minus the portion of prior DISTRIBUTIONS that weren't taxable on last year's form 1040.

Note that the IRS requires taxpayers to track the cost basis of their IRA accounts using Form 8606. If you have been tracking the cost basis, the adjusted basis is reported on line 14 of your last filed Form 8606.

If you have multiple IRA accounts, some funded with pre-tax money, and some funded with after-tax money, or a mixture of both, you can NEVER withdraw ONLY the nondeductible part - it must be prorated over the aggregate value of ALL Traditional IRA accounts. 

[fanfare]

If you have not been filing Form 8606 and did not use Form 8606 to calculate the taxable and non-taxable parts of your IRA distributions, you have a mess on your hands.

File a proper Form 8606 for the year of the most recent distribution.

Maybe the IRS will not audit you and let you get away with it.