Tax Status of RMD calculations for both pre-tax and after-tax IRAs

[DorieBigD]

Hello - First, thanks for doing this!

I have 3 IRAs: a Roth,  pre-tax Rollover and after tax Traditional.I will need to take my RMD starting next year. I understand that no distribution is required from the Roth. For the other two plans, how is that handled and how do I calculate how much is taxable vs non-taxable from the RMD?

[Cindy4]

Hi @DorieBigD !

The entire distribution from the pre-tax Rollover will be taxable to the extent that your income is greater than the standard or itemized deduction you take.  The after tax Traditional may provide you with a statement along with a form 1099-R that will indicate the taxable and non-taxable portions.  The distribution is considered proportionate by the IRS, so you will want to check their reported numbers so you don't pay tax twice on the same dollars.  It's important to know the amount of your non-deductible contributions so you can calculate proportion compared to the earnings.  Tax rules require an IRA’s after- tax contributions to be compared with the year-end IRA balance, plus distributions during the year, to calculate the ratio of pre-tax and after- tax dollars involved in a distribution.

Here is a reference link regarding RMDs:

https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs#:~:...

Hope this helps!

Cindy

[Ruth C-L]

I would add that ideally you'd have tracked your nondeductible contributions (cumulative) each year when you filed your taxes on Form 8606. The total amount of nondeductible contributions as reported on Form 8606 is the best documentation of your nontaxable distributions from the two retirement plans as that would have previously been reported to the IRS on the appropriate form.

Ruth, CPA, Attorney

[dmertz]

With regard to regular distributions, including RMDs, all of your traditional IRAs are treated by the tax code as being a single combined IRA.  IRA custodians have no way to know your basis in nondeductible traditional IRA contributions, so any regular distribution from a traditional IRA is required to be reported on Form 1099-R with the same taxable amount in box 2a as the gross amount in box 1, with box 2b Taxable amount not determined marked.  When you have basis in nondeductible traditional IRA contributions it's your responsibility to file Form 8606 to calculate the taxable and nontaxable portions.  TurboTax will prepare Form 8606 for you when you make a distribution and indicate that you have basis in nondeductible traditional IRA contributions.  (Because nondeductible traditional IRA contributions are required to be reported when made, if you used TurboTax to file the tax returns for year that you made nondeductible traditional IRA contributions, the basis information should be carried forward automatically when you transfer in the previous year's tax return to begin a new tax return.)

[DorieBigD]

I did do the 8606 many years ago for a couple of years but don’t have that information now. How should I proceed?

[dmertz]

It's your responsibility to have retained that information.  Perhaps you can obtain from the IRS a transcript or a copy of the tax returns for the corresponding years, but there are limits on how far back you can go, 3 years for transcripts and 7-years for tax-return copies.  Absent that, you'll have to make your best guess hope for the the IRS accepts it.

[Cindy4]

If you've been using TurboTax, please check your last filed return for the presence of an 8606.  If you've answered the questions as you prepared your return, you may be good to go!