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Level 2
posted Oct 31, 2024 4:05:32 PM

How to calculate after-tax portion in my IRA?

Hi there,

 

I have a question on how to calculate my after tax portion as my IRA balance changes.

I had a balance of 100k in my IRA (5k after-tax and 95k pre-tax) at the end of 2023. Now the balance is 110k. Should my after-tax portion remains as 5k? Or it should be 5k* (110k/100k) = 5.5k?

Thanks

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1 Best answer
Level 15
Oct 31, 2024 4:08:22 PM

It always stays the same.  So 5,000.  

5 Replies
Level 15
Oct 31, 2024 4:08:22 PM

It always stays the same.  So 5,000.  

Level 15
Oct 31, 2024 4:10:57 PM

Your after-tax contributions are only what you put in after tax, because even on after-tax contributions, the growth is tax-free. 

Level 2
Oct 31, 2024 4:21:33 PM

Thanks @Opus 17 . I guess there's a typo? You mean "even on after-tax contributions, the growth is NOT tax-free. "?

Level 15
Nov 1, 2024 4:50:51 AM

Taxger, you are correct.  Opus 17 left out the word 'not' or meant to say that the earnings are taxable.

 

The after-tax contribution to a traditional IRA was required to have been reported on From 8606, so, properly reported, your basis is the amount on line 14 of the last Form 8606 that you filed.

Level 15
Nov 1, 2024 7:58:09 AM


@Taxger wrote:

Thanks @Opus 17 . I guess there's a typo? You mean "even on after-tax contributions, the growth is NOT tax-free. "?


It's a matter of semantics.  The growth in any IRA is tax-free at the time (unlike a regular investment account, where you pay tax every year on interest, dividends, and any capital gains that might have occurred from changing investment instruments or activity within a mutual fund).  Because growth in the IRA is tax-free when it occurs, it is always taxable when withdrawn.  (This is also why IRA withdrawals are taxable to a beneficiary after the original owners death, and don't get a stepped up basis--tax was never paid on the contributions, so it is always paid on the withdrawals.)

 

So my explanation essentially should have been read as, "the growth is tax-free when it occurs, so it is always taxable when withdrawn, even if some of that growth could be attributed to after-tax contributions."