Taxable IRA distributions reducing after-tax basis

[mattmi88]

I have several several traditional IRA accounts that are completely funded from 401k rollovers, all are pretax funds. I have one IRA account that only has after-tax, non-deductible contributions. Basically, while working, I contributed the max allowed to both company 401k and the traditional IRA every year. I also dutifully reported Form 8606 each year so I know the after-tax basis in that one IRA, which also happens to be for all my IRAs.

I started taking only dividend distributions from my IRAs. I entered all my 1099-Rs and was expecting to pay tax on all of these distributions, since they are earnings in the IRAs. However, because I had tracked the after-tax basis, Form 8606 wants to compute the portion of the distribution that's nontaxable and deduct it from the after-tax basis.

Can you characterize a distribution as only pre-tax so all of it is taxed? Or alternatively, can you force the computation so that none of the distribution deducts from the after-tax basis?

Does this mean, in general, that the IRS treats all your traditional IRAs as one combined pool of money so that any distribution from any IRA causes proportional pre- and after-tax amounts if you've tracked an after-tax basis?

Thanks very much!

[fanfare · Accepted solution]

"Does this mean ..."

Yes.

There are no alternatives for treatment of an IRA with basis.

your basis can never go to zero until you liquidate all IRA accounts.

@mattmi88