How can I calculate the basis when I withdraw 2016 and 2017 RMD in 2017?

[DianeW]

For a Traditional IRA your cost basis is the amount that you invest into your IRA that was with "after tax" money. In other words if you ever had contributions that you were not allowed to deduct.

1. If you had that situation then the most recent filed Form 8606 will have your cost basis of all IRAs.

The Form 8606 will be completed in the years of distribution to calculate the tax free portion (cost basis) allowed for each year of withdrawal. You can NEVER withdraw ONLY the nondeductible part - it must be prorated over the entire value of ALL Traditional IRA accounts.  (For tax purposed you only have ONE Traditional IRA which can be split between as many different accounts as you want, but for tax purposes they are all added together). As long as there is any money in the IRA, there will be some cost basis.

• For example using rough figures: if you had $60K of nondeductible contributions in an IRA with a total value of $600K (10:1 ratio), then when you take a $60K distribution from any IRA account $6,000 would be nontaxable and $54,000 would be taxable (same 10:1 ratio), with the remaining $54K of basis staying in the IRA for future distributions. 

2. If you never had any contributions that you were not able to deduct (nondeductible), then you have no cost basis in the IRA.  The full amount of all distributions will be taxable.

[jimjames_100]

Please tell me where in turbo tax should I put my total ira values  for end of 2105 and end of 2016?

[DianeW]

@jimjames_100 Use the values for end of 2017.

[jimjames_100]

No. Sorry you still do not understand my question. First, Turbotax has only an entry for the values of end of 2017, not 2016. (You should check the Turbotax program).  Second,  the value for end of 2016 is different than that for end of 2015.  The basis is the same but the values are different, which will affect the percetage of the taxible income.  And Turbotax has given only one entry for the values of end of 2017. One may use that entry for the value of end of 2016 but how about 2015?  I don't think Turbotax is designed for people who reach 70.5 and take their 2 year RMDs in one year.

[jimjames_100]

Depending on the value of end of 2015, people may pay more or less taxes. Either way, it makes Turbotax liable.

[DianeW]

@jimjames_100 The value at the end of the year for the year of distribution, regardless if it is two years taken in one year is the value you enter as indicated by the question in TurboTax. You can't go backwards. I corrected the comment above. The cost basis at the end of 2016 is entered, assuming you have the Forms 8606 to confirm, and then the value as of December 31, 2017.

[jimjames_100]

It is a basic math calculation. Even the elementory school students can understand and do it.  You might be ignorant before. Now I have pointed it out. You'd better do something about it. You are exposing yourself to class law suit and inviting IRS to check on you. You should let you CEO or CFO know the problem if you don't want to be the scapegoat.

[macuser_22]

First. an RMD has nothing to do with a IRA distribution.

Second, The "basis" (or prior year after-tax contributors)  is asked for in the interview.  That amount is the line 14 amount  from the last filed 8606 form.  You do not "calculate" the basis. The basis is whatever the last filed 8606 line 14 amount was.

The year end value that the interview asks for is the 2017 year end value of all existing Traditional. SEP or SIMPLE IRA accounts that existed on December 31 2017.

If you did not take a 2016 distribution because you turned 70 1/2 in  2016 and deferred the first RMD to 2017  and took both RMD's in  2017 then that only means that the 1099-R distribution reflects the total of both years RMD amounts.   The calculations on the 8606 form lines 6-15 will reflect the carryover basis on line 2, the total 2017 years end value on line 6 , the distribution amount on line 7, and the tax calculations on lines 6-15.

What do you think is not correct?

[DianeW]

@macuser_22 Thank you for the additional explanation for further clarity of the Form 8606.

[jimjames_100]

Thank you very much for taking time answering my question.
First, RMD stands for Required minimum distribution of the IRAs. How come it has nothing to do with an IRA distribution?
Let me simplify my question. Say  all my IRA values at the 2016 year end are $1000,  my IRA basis is $100 and I reach 70.5 in 2016. My RMD for 2017 is 1000/27.4, which equals 36.5.  The ratio of basis/value is 10%.  So my taxible RMD is 32.85.  If I am still working and put $1000 in my SEP ira in 2017, the 2017 year end value is 1963.5. If I use the 2017 year end value, the ratio will be 5%. So my taxible RMD will be 34.68, more than 32.85. If I do not contribution more money to my SEP ira and the market goes down south in 2017, I may end up with 500 for the values of 2017 year end ira.  If I use the 2017 year end value,  my taxible RMD will be lower then what it should be.
When one takes 2 year RMDs in one year, the situation becomes more complicated.
I hope you can understand my question now.

[macuser_22]

1)  A RMD distribution is the same as any other distribution for tax purposes - the only difference is that you are required to take it.

2) If taken in  2017, the the 2016 year end value is irreverent since there was no 2016 distribution.

3) For the 2017 distribution you enter the prior basis from line 14 on the last filed 8606 form and the *2017* total value of all Traditional, SEP and SIMPLE IRS's that existed.   The taxable amount is prorated between the 2017 distribution  (the total olf both RMD's) and the 2017 year end value that goes on line 6 of a 8606 form and is calculated on line 6-15.    You can print and vies the 8606 for the calculation.

[jimjames_100]

You wrote
2) If taken in  2017, the the 2016 year end value is irreverent since there was no 2016 distribution.

Why? In my opinion, the 2017 RMS is based on the year end value of 2016, not that of 2017. It has everything to do with that of 2016, not that of 2017.  the taxible portion of RMD should be calculated as basis/that of 2016.

[macuser_22]

The amount of the 2017 RMD *itself* was calculated on the 2016 year end value - or should have been.  Just as the amount or the missed 2016 RMD must be calculated on the 2015 year end value. That is only for calculating the amount of the RMD.  You can do that yourself or the financial institution would do if for you - they also put that amount on the 5498 form that you receive in May.   

TurboTax does not calculate the RMD amount so that information is irreverent to TurboTax in calculation the *taxable* amount of the *2017* distributions.    That *only* depends on the amount of distributions taken *in* 2017 as reported in box 1 on the 2017 1099-R and the *2017* December 31, total IRA value.   

The box 1 amount your 2017 1099-R should be the total of the 2016 RMD amount (calculated on the 2015 year end value) and the 2017 RMD amount (calculated on the 2016 year end value).   If the RMD amounts were not calculated correctly then that is water under the bridge for 2017 taxes since those distributions are what they are and the box 1 amount is the taxable amount offset by any pro-rated carry forward basis.

[jimjames_100]

Thank you for the explanation. I did not see any forms until I filed my tax return. Having seen the forms,  I understand what you were talking about. For the RMD, the form asked for the value of 2017 year end value of my IRA. It is clear to me now that it is the government that wants the info. I have never filed the RMD form before so I had no idea of what questions it asks. I wish I had had a chance to review all the tax return forms during the process.  Some other companies show their clients forms with a stamp of DRAFT on the forms before final filing so the clients know what the form look like.