How do I calculate the non-taxable portion of an IRA distribution when part of the IRA funds are pre-tax and part are after tax?

[DavidD66]

The amount of your distribution that is taxable is distribution amount x the taxable percentage of your total balance.  Your taxable percentage is determined by subtracting the after tax contributions you made to the IRA from the total balance.  For instance, if you made $60,000 of after tax contributions, your total balance is $900,000, and you take a $30,000 distribution, then your taxable portion is:

$30,000 x ($900,000-$60,000)/900,000 = $27,900

or $30,000 x 0.93 ($840,000/$900,000) =$27,900

You should be calculating this and reporting it on Form 8606.  If you didn't file Form 8606 in the years you made after tax contributions, that could cause a problem.  You can file Form 8606 by itself, and after the fact, so I recommend you file a Form 8606 for any prior year you made an after tax IRA contribution and did not file Form 8606.

[CN11]

Just to be clear, your first distribution occurred in 2022, in the amount of $30,000. If true, then your 1099-R should state this amount in line 1.   Line 2a could be blank if you imported the 1099-R into TurboTax, even if your financial institution had indicated a taxable amount but checked line 2b as "Taxable amount not determined." My completed prior year tax returns in fact have line 2a identical to line 1; however, for tax year 2022, line 2a at this point in working on my taxes is blank after importation. Do not concern yourself  with line 2a at this time.

Most importantly, the distribution must equal or exceed your RMD for 2022, in order to avoid penalties for an insufficient withdrawal. Typically, your financial institution provides RMD information in a January account statement and/or in an RMD notification letter. 

Pretax contributions are fully taxable upon distribution and are not relevant. What matters is the total of all of your IRA holdings, and the total non-deductable (post tax) contributions, which is known as the basis of your IRAs. Your basis is $65869.00. You state the "current balance" of the combined IRA as $900000.00. This must be the balance as of 12/31/2022 for purposes of tax computations. The ratio of your basis to the sum of the tax year-end balance and the total distributions for the tax year is 65869/(900000 + 30000) = 0.070827 rounded up and establishes the fraction of the IRA that contains the basis. Since you distributed $30,000, then that same fraction of the $30,000 will be the basis removed from IRA in the distribution, calculated as 0.070827 * $30,000 = $2125. Therefore, for 2022 the taxable amount of the distribution would be $27,875 and your remaining basis for 2023 becomes $65,869 - $2,125 = $63,744.

Turbotax  does these calculations for you in form 8606, as long as prior tax year form 8606s are reflected in your 2022 Turbotax form 8606.  If not, you may account for them in your IRA information worksheet by manual entry in line 12, Basis for 2021 and earlier years, or by providing it in the Step-by-Step Update on IRA, 401K pension withdraws (1099-R).