Took my first RMD from my IRA this year and have cost basis in my IRA. I use Turbo Tax and know how to determine the percentage of my IRA that is not taxable based on my IRA cost basis. But also retired and had to take a RMD distribution from my 401K before rolling it over to my IRA. Do I apply my cost basis percentage to just my IRA or do I apply it to my combined IRA/401K distribution. For example, if I have a $100,000 IRA with a $10,000 cost basis, I know that 10% of my IRA RMD would not be taxable. But if I also had a $900,000 401K, and had to apply my cost basis to both my IRA and 401K, my $10,000 cost basis would only mean 1% of my RMD was non taxable. So, do I apply my cost basis percentage to just my IRA or both my IRA and 401K?
IRAs do not have cost basis, traditional IRAs have basis in nondeductible contributions. Basis in nondeductible traditional IRA contributions only apply to your traditional IRA distributions, not your 401(k) distribution. Only your IRA distributions are reported on Form 8606. Any separate after-tax basis you might have in your 401(k) applies only to distributions from that 401(k). I'll assume that your example applies to distributions and rollovers performed in 2017. In your example, 100% of the 401(k) distribution is taxable. However, with the rollover of a remaining $900,000 from your 401(k) to your traditional IRA in 2017, your December 31, 2017 balance in traditional IRAs plus the amount of your RMD distribution in 2017 will result in only 1% of your IRA distribution will be nontaxable, with the remaining 99% being taxable. The money that was 401(k) money is now IRA money; it no longer has any relation to the 401(k).
TurboTax knows from the marking of the IRA/SEP/SIMPLE box on the Forms 1099-R whether the distribution is from a traditional IRA or is instead from another type of retirement plan and will prepare Form 8606 automatically. After entering all of the Forms 1099-R, be sure to click the Continue button on the Your 1099-R Entries page and answer the additional follow-up questions. TurboTax will ask for you December 31, 2017 balance in traditional IRAs. Be sure to answer that accurately; you cannot exclude from that total the amount distributed from the 401(k) in 2017 and rolled over to the traditional IRA.
IRAs do not have cost basis, traditional IRAs have basis in nondeductible contributions. Basis in nondeductible traditional IRA contributions only apply to your traditional IRA distributions, not your 401(k) distribution. Only your IRA distributions are reported on Form 8606. Any separate after-tax basis you might have in your 401(k) applies only to distributions from that 401(k). I'll assume that your example applies to distributions and rollovers performed in 2017. In your example, 100% of the 401(k) distribution is taxable. However, with the rollover of a remaining $900,000 from your 401(k) to your traditional IRA in 2017, your December 31, 2017 balance in traditional IRAs plus the amount of your RMD distribution in 2017 will result in only 1% of your IRA distribution will be nontaxable, with the remaining 99% being taxable. The money that was 401(k) money is now IRA money; it no longer has any relation to the 401(k).
TurboTax knows from the marking of the IRA/SEP/SIMPLE box on the Forms 1099-R whether the distribution is from a traditional IRA or is instead from another type of retirement plan and will prepare Form 8606 automatically. After entering all of the Forms 1099-R, be sure to click the Continue button on the Your 1099-R Entries page and answer the additional follow-up questions. TurboTax will ask for you December 31, 2017 balance in traditional IRAs. Be sure to answer that accurately; you cannot exclude from that total the amount distributed from the 401(k) in 2017 and rolled over to the traditional IRA.
LOOK AT whether the IRA box in line 7 is checked (I am talking about the box, not the line 7 code). IF it is checked then TurboTax will deduct whatever nondeductible IRA contributions you have been recording on Form 8606 from your taxable income (it seems to deduct them in full from the 1st distribution). If you have made non deductible contributions to that IRA and have not created form 8606 for those then then I guess you will need to create form 8606.
I am not a tax professional, but the above is what happened on my 1099-R for my 1st RMD