I have a trad IRA with non-deductible contribs & gains. I didn't file form 8606 in yrs of contribution but I know the basis. What do I do to minimize tax on withdrawals.

[brian-perrigino]

More details: value of IRA is about $170K;  assume non-deductible contributions were $68,000 over multiple years.  Assume I withdraw $50K;  I think $30K should be taxable (102/170=60%) but how do I enter this?

[eignash1]

I have previous after tax deposits to my ira. where do i enter this

[Critter-3]

@eignash1 

Did you take a distribution in 2021?   

Did you make a contribution in 2021?

Have you been filing a form 8606 when needed in the past?  

[fanfare]

When taking a distribution, see Form 8606 Line 2 to report your non-deductible contributions.

Then do  the calculation specified on the following lines.

Note: If you have been remiss in filing 8606 as required, IRS can ask for documentation.

@eignash1 

[Opus 17]

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@eignash1 wrote:

I have previous after tax deposits to my ira. where do i enter this

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Whenever you make non-deductible contributions to a traditional IRA you must report them on your tax return and your tax software will generate a form 8606.  If you make more non-deductible contributions in a future year, you must prepare a new form 8606 that takes information from the old 8606 plus the new tax year to generate a new form 8606.  Then when you withdraw from the IRA, you use the previous form 8606 to show that part of your withdrawal is non-taxable.

If you did not prepare and file form 8606 in every past year when you made non-deductible contributions, you must go back and file those forms now.  Otherwise, your future withdrawals will be taxable even though some of the contributions were already taxed. 

[fanfare]

If you can demonstrate by your records that you did not take a deduction, then it is not taxable.

This would be a hassle with the IRS if you are audited.

[Opus 17]

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@fanfare wrote:

If you can demonstrate by your records that you did not take a deduction, then it is not taxable.

This would be a hassle with the IRS if you are audited.

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The way you demonstrate by your records that you have a non-deductible basis is by including a form 8606 when you make the withdrawal.  That form must reference prior form 8606s that document the contributions.  If you file a form 8606 with a non-taxable withdrawal that is not backed up by prior 8606s, you will get an automatic deficiency notice.

If you never filed form 8606 in the past, you can do that now, using your own records to complete the forms.  You can file form 8606 for each past year by preparing the form, signing it, and mailing it to the IRS.  Since form 8606 has its own signature space, it can be filed by itself and does not have to be attached to an amended return.  But you have to use the right form 8606 for each year (the 2020 form for 2020 contributions, the 2019 form for 2019 contributions, and so on.). And because each form builds on the previous form, you have to start at the beginning with the first missed form and then move forward one year at a time.

Past year forms are here.

https://www.irs.gov/forms-pubs/prior-year

[fanfare]

@Opus 17 

From 2017 IRS Pub 590A

"Failure to report nondeductible contributions. If you
don’t report nondeductible contributions, all of the contributions
to your traditional IRA will be treated like deductible
contributions when withdrawn. All distributions from
your IRA will be taxed unless you can show, with satisfactory
evidence, that nondeductible contributions were made."