How to calculate after-tax portion in my IRA?

[Taxger]

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

[VolvoGirl]

It always stays the same.  So 5,000.  

[Opus 17]

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

[Taxger]

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

[dmertz]

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.

[Opus 17]

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@Taxger wrote:

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

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  Because growth in the IRA is tax-free when it occurs, it is always taxable when withdrawn.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explanation essentially should have been read as, "the growth is tax-free when it occurs, so it is always taxable when withdrawn, even if some of that growth could be attributed to after-tax contributions."