We have contributed to our IRA for many years (1983-present). We rolled some of this money this year to a Roth IRA since our 2020 income is less than many years due to retirement. TD Ameritrade sent us a 1099-R with our gross distribution in #1 and taxable amount in #2. In #2B it designated that the taxable amount was not determined.
How do we come up with this taxable amount? Many of the contributions to this IRA were after tax dollars. Both of us had pensions at work that did not allow us to take a credit on our taxes for contributions. Do we have to pay taxes on all of the distribution? Do we factor in cost basis from the original purchase in our taxable amount calculations?
If you were making non-deductible contributions to a Traditional IRA, then the amount of any withdrawal is a combination of taxable and non-taxable. To calculate the taxable amount, you will need to know the amount of after tax contributions you made to the account. When you made a nondeductible contribution to a traditional IRA, you should have filed IRS Form 8086 with your tax return each year. Form 8086 documents your IRA basis so you know how much you have in nondeductible contributions.
TurboTax will automatically generate and fill out Form 8606 (Nondeductible IRAs) if you reported any of these on your tax return:
- Nondeductible contributions made to a traditional IRA
- Distributions from a traditional, SEP or SIMPLE IRA that had nondeductible contributions (excluding rollovers, conversions, recharacterizations, qualified charitable distributions, one-time distribution to fund an HSA, or return of certain contributions)
- Conversions from a traditional, SEP, or SIMPLE IRA to a Roth IRA
- Distributions from a Roth IRA (other than rollovers, recharacterizations, or a return of certain contributions)
You may need to update the amount of non-deductible contributions if you did not use TurboTax each year you made a non-deductible contribution, or if you didn't report the contribution.
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non- deductible contributions must be reported on Form 8606 each year.
IRS may deny your claim if you cannot produce other satisfactory records as documentation,
including tax returns that show you did not take a deduction.
Without form 8606 your conversion is all taxable.
With Form 8606 it would be partly taxable.