RMD from Nondeductible IRA and Rollover IRA, Cost basis

[sshenoy1999]

We have both nondeductible Traditional IRA (with a cost basis), and a Rollover IRA from Employer.

The major financial Institution calculated the RMD  and the entire amount was dispersed from only the nondeductible Traditional IRA. The box 'taxable amount not determined is checked. The institution gave form 5498s for both IRAs.  Which fair market value account should I enter on Form 8606 ( Nondeductible IRAs) ? Both IRAs were used to calculate RMD but all were paid out from the nondeductible IRA which has a cost basis. Thanks you

[fanfare · Accepted solution]

The "total value in IRAs", on Form 8606 , does not include your Roth IRAs.

[dmertz · Accepted solution]

The taxable amount does not depend in any way on which traditional IRA the distribution came from.  All of your traditional IRA accounts are considered together to be a single IRA with the taxable amount being calculated using the sum of the year end values in all of your traditional IRAs.  There is no such thing as a "deductible IRA," only nondeductible contributions made to your traditional IRAs in aggregate.

The calculation is done separately for your distributions and your spouse's distributions.

[sshenoy1999]

FROM SMARTASSET WEBSITE:

This answers my question.

If you don’t keep deductible and non-deductible contributions separate, you could end up paying more taxes than you should. That’s because once you’ve blended deductible and non-deductible contributions, it’s hard to keep the two straight.

You can do it, though – so long as you keep track of your contributions. You’ll then have to divide your non-deductible contributions by the total contributions to all IRAs in your name to get a percentage that represents your after-tax contributions. You don’t have to pay federal taxes on this percentage of the growth in the account when you start taking deductions. Your after-tax contributions to IRAs are known as your basis.

You can (and should) file Form 8606 for each year that you make after-tax contributions to a non-deductible IRA. That way, you’re giving the IRS a record of your contributions that the government entity can use to calculate your tax burden in retirement.

[fanfare]

The thing is Turbotax handles all that for you. That's what you're paying for.

Keep your own paper records of important tax documents, such as 8606.

Who knows, you might not be using TurboTax forever.

[dmertz]

The first two sentences in what you quoted are quite misleading in that they imply that your nondeductible contributions to your traditional IRAs can somehow be kept separate from the other money in your traditional IRAs.  That's not possible since your basis in nondeductible traditional IRA contributions applies to your traditional IRAs in aggregate, not in any particular account.  By referring to a "nondeductible IRA," the article repeatedly makes the invalid assertion that the nondeductible contributions are isolated in a particular IRA.  There is no such thing as a "nondeductible IRA."

[fanfare]

there's a bunch of misstatements in that article. Not one I would push as a reference.