I took a distribution from an inherited IRA. Is my entire distribution taxable? Or do I need to know what the cost basis of each of the stocks I sold to take the distribution and record the difference between the two as income?
You'll need to sign in or create an account to connect with an expert.
Investments within an IRA do not have a capital cost basis. The entire balance in the IRA is tax-deferred income and is entirely taxable when distributed unless the participant had basis in nondeductible traditional IRA contributions (which has nothing to do with the purchase price of any of the investments within the IRA). If the decedent had basis in nondeductible traditional IRA contributions, the basis would generally have been reported on Forms 8606 filed by the participant. Absent such evidence, the entire distribution is taxable.
The whole point of any IRA is that the contributions are tax-deductible and the investments grow tax-free, so there is no basis and the entire amount is taxable as regular income. (Even though, with a regular broker account, you are only taxed on your gains and usually at a lower rate, IRAs still have a strong financial advantage in the long run.)
It is possible, but uncommon, for someone to contribute non-deductible funds to an IRA and have a partial basis that is not taxed on withdrawal. But to prove this to the IRS, you would have to have copies of form 8606 from the deceased's tax returns. Without that knowledge, you will assume that you have zero basis and the entire withdrawal is taxable.
Still have questions?
Make a postAsk questions and learn more about your taxes and finances.
ojmn
Returning Member
Fernanag
New Member
Phillip6000
Level 1
Phillip6000
Level 1
bfordmn
Returning Member
Did the information on this page answer your question?
You have clicked a link to a site outside of the TurboTax Community. By clicking "Continue", you will leave the Community and be taken to that site instead.