Thank you in advance for your help.... Over the years, I have made contributions to my traditional IRA that were nondeductible (and have kept track of my IRA basis and reported it on my 8606 every year). It was my understanding, when this amount was withdrawn from my traditional IRA it would be tax free (since I previously paid tax on it).
However, Turbotax has calculated a tax being owed on my basis amount, based on what my year-end balance in the account was and the amount of the basis I am withdrawing (so my basis withdrawal is nowhere near tax-free). Is this correct?
Yes, if you only had nondeductible contributions to your traditional IRA then only the distribution amount allocated to the earnings will be taxable. The rest will be tax-free because of your basis. Please see the pro-rata rule for additional information.
If you had a balance left in the traditional IRA on December 31, 2022, and had earnings then each distribution will have a taxable and nontaxable part. The rest of your basis will show on line 14 of Form 8606.
Please review these steps to enter your distribution and basis: