Tracking 403b - vs Trad IRA vs RMD

[PS56k]

We have a single Fidelity Trad IRA - and also a Fidelity 403b from our teaching days.
(thinking of a rollover from the 403b into the IRA to make record keeping simplier)

Have noticed over the years, as we review our Turbotax data,
that the IRA worksheet wasn't always keeping track of the ongoing Cost Basis -
and I don't think I was enterring the year end Market Value.
Both are solid entries now for future RMDs when they happen...

SO... was thinking about the "IRA Market Value" - and then thought about our 403b.....
What happens with that ?
There is no tracking in Turbotax -
so... do I need to keep track of it manually - and do I need Cost Basis ?

Also found the IRS note - that the RMDs must be taken from each "group" -
So the Trad IRA has its own RMD calc & withdrawal and the 403b has its own RMD calc & withdrawal.

Where, or how is the 403b withdrawal reflected in Turbotax - and is there any Cost Basis reflected ?

[Opus 17]

Well, first "we" can't have an IRA or 403(b).  Each account is owned by a single individual.  So if you are married and spouse A owns an IRA and spouse B owns a 403(b), they can't be combined.  Spouse B could rollover their 403(b) to their own IRA, but they can't be combined.

Maybe your language was just sloppy, but just to make sure you know.

Then, a traditional IRA is composed of pre-tax contributions and the basis is always zero.  Gains don't add to the basis and losses don't subtract from the basis.  Nothing that happens in a traditional IRA means anything until you take money out and then it is taxed as ordinary income.  The only reason to track market value is to track the performance of your investments, it has no effect on your taxes.

You only have a basis in a traditional IRA if you made non-deductible contributions.  These would be tracked on form 8606.  If you made non-deductible contributions you need to save copies of your tax returns including your form 8606s indefinitely, so you can prove your basis when you start taking money out.  

https://www.irs.gov/forms-pubs/about-form-8606

Your most recent form 8606 would list the non-deductible contribution for that year as well as the total of previous non-deductible contributions, so when you withdraw from the IRA, you really only need that most recent form 8606.  If you did not save it, you can get a copy from the IRS.

https://www.irs.gov/individuals/get-transcript

Basically, traditional IRAs are always pre-tax so you pay tax on all your withdrawals.  If you had some non-deductible contributions, then a portion of your withdrawals would be tax-exempt (since they were already taxed).  But you have to prove it, regardless of whether the IRA custodian kept records.  And you still don't need to keep track of market value, just the amount of deductible and non-deductible contributions, which you should have been doing on your tax returns.  

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Likewise, a 403(b) account is either 100% pre-tax (no basis) or 100% after tax (if you had a Roth option 403(b). Roth option is recent and if you have had the account a long time, it's probably a regular pre-tax 403(b).). There is no legal way to mix pre-tax and after-tax funds in a single 403(b) account.

(I currently have four 403(b) accounts.  Pre-tax from employer A (former), pre-tax from employer B (pre-tax standard retirement plan), Roth from employer B (my after-tax contributions), and pre-tax from employer B (a small incentive match account).  They are all with the same trustee but each account only contains 100% pre-tax or 100% after tax money.)

Because a 403(b) contains only pre-tax money, all withdrawals are subject to regular income tax, you have no basis.  Any gains or losses don't matter for tax purposes, the only thing that matters is how much you withdraw.  If you have gains, you withdraw more and pay more tax, if you have losses, you withdraw less so you pay less tax.

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If you have a pre-tax IRA with zero basis and a pre-tax 403(b) with zero basis and they are owned by the same person, there is no problem rolling over the 403(b) into the IRA.  It's likely that the IRA has higher maintenance fees but a broader range of available investment choices, so that's something to consider.

If you have a traditional IRA with a partial basis due to non-deductible contributions, you could still roll the 403(b) into an IRA account but I would put it into a new IRA so you aren't mingling pre-tax and after-tax funds any more than necessary.

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If you have a 403(b) and a separate IRA, when you reach RMD age (72) you will have to make at least a minimum withdrawal from each account.  If you roll over the 403(b) into an IRA (the same or a different IRA account) then you can aggregate your IRA balances when calculating your RMD. 

[PS56k]

tnx for the reply and touching on the various aspects of the topic.

Yes - it is I - but so used to the family, consulting, school, etc - The We -

The IRA does have a basis, as over the years it was sometimes deductible and sometimes not ..... so it has a basis. Had not thought about the 403b... just being 100% .

My main idea was to simplify and rollover the 403b into the Trad IRA (with a basis) - but you mentioned this might not be a good idea ? - why ?  So, in the future we would just have the single RMD - and not have to calc & withdraw from each "group" - the IRA and the 403b

If you have a traditional IRA with a partial basis due to non-deductible contributions, you could still roll the 403(b) into an IRA account but I would put it into a new IRA so you aren't mingling pre-tax and after-tax funds any more than necessary.

[Opus 17]

@PS56k 

For purposes of calculating the RMD, the IRS says,

More than one IRA.

If you have more than one traditional IRA, you must determine a separate required minimum distribution for each IRA. However, you can total these minimum amounts and take the total from any one or more of the IRAs.

My own preference would be to rollover the purely pre-tax 403(b) to a separate IRA account from the mixed traditional IRA you already have.  However, it's not wrong or disallowed to put everything in one IRA.  You need to keep track of the non-deductible contributions via form 8606.  The yearly ending balances and yearly growth doesn't need to be tracked for tax purposes. . The taxable amount of your withdrawals will be determined using the basis you have tracked on form 8606. 

[Opus 17]

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@Opus 17 wrote:

My own preference would be to rollover the purely pre-tax 403(b) to a separate IRA account from the mixed traditional IRA you already have.  However, it's not wrong or disallowed to put everything in one IRA.  You need to keep track of the non-deductible contributions via form 8606.  The yearly ending balances and yearly growth doesn't need to be tracked for tax purposes. . The taxable amount of your withdrawals will be determined using the basis you have tracked on form 8606. 

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And now that I think about it, depending on the size of the IRA, I might strongly consider converting it to a Roth IRA.  You would pay the tax now on everything that is not your taxable basis, but you would never pay taxes on it again, and Roth IRAs do not have an RMD requirement at all.  Then you could leave the 403(b) as-is, or roll it over into a traditional pre-tax IRA.  

(Because the annual contribution limits to the IRA were always less than the limits for the 403(b), am I basing this plan partly on the expectation that the 403(b) is larger than the IRA, and you could use funds from the 403(b) to pay the tax on the conversion.  You might want to talk to a financial planner.)

[fanfare]

"It's likely that the IRA has higher maintenance fees "

If your IRA has maintenance fees, you have the wrong custodian.

[Opus 17]

@fanfare 

The expense ratios for the institutional class funds available through the 403B are usually much lower than the expense ratios for similar investor class funds.

[fanfare]

your mutual fund fees are not a maintenance fee.

[Opus 17]

@fanfare 

Your nitpicking serves no purpose.  The point I was making is that investments in a 403(b) are often less expensive than a private IRA because the employer has access to funds with lower expense ratios.  You have more flexibility in your investments in an IRA, but you likely pay higher expense ratios or even front end loads.  Those expense ratios come out of your bottom line, and if you don’t realize that at least some of that money ends up in the pockets of the broker, you aren’t paying attention.  

[PS56k]

Because a 403(b) contains only pre-tax money, all withdrawals are subject to regular income tax, you have no basis. Any gains or losses don't matter for tax purposes, the only thing that matters is how much you withdraw. If you have gains, you withdraw more and pay more tax, if you have losses, you withdraw less so you pay less tax.

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Got it - thanks - also.... looks like the RMD has to be withdrawn from each "group type" of accounts.  So one RMD from Trad IRA and one RMD taken from 403b -

Lastly.... is there anywhere in TTax to track the Market Value of the 403b as a Reminder for the future RMD ?  There are several places for the IRA info, with basis, etc - but nothing for tracking the year end market value of the 403b ?

[Opus 17]

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@PS56k wrote:

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Got it - thanks - also.... looks like the RMD has to be withdrawn from each "group type" of accounts.  So one RMD from Trad IRA and one RMD taken from 403b -

Lastly.... is there anywhere in TTax to track the Market Value of the 403b as a Reminder for the future RMD ?  There are several places for the IRA info, with basis, etc - but nothing for tracking the year end market value of the 403b ?

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Turbotax does not do that kind of tracking and reminding, it's designed solely as an end of year tax prep program.  Something like Mint or Quickbooks might be able to remind you about your RMDs. 

If you keep your 403b and your IRA separate, then you will indeed have a separate RMD requirement for your 403b and your IRA.  If you did a rollover into an IRA, then you would calculate one RMD amount from your entire IRA balance.  (But, you and your spouse still have separate RMD requirements because accounts owned by different individuals can't be combined.)