taxable IRA distribution calcuation

[chia]

If you have non-deductible IRA contribution (after tax and non-deductible), not entire IRA distribution is taxable and should be calculated based on the base non-deductible IRA of the prior year and the total IRA amount at the year end of the current year.   Is form 8606 used to calculate the taxable IRA distribution?   The non-deductible amount will then be decrease every year until it becomes 0.  By then, all IRA distribution is taxable. Correct?  However,  I don’t see form 8606 for the  past 3 years since I used Turbo.  It did not ask the non-deductible IRA contribution amount during data entering until 2022 tax filing when I had Roth conversion.  How does Turbo calculate the taxable IRA distribution, what worksheet is used, 8606?

[AR_CPA2]

Yes, that is correct.  If you have made non-deductible IRA contributions then not the entire IRA distribution will be taxable.  Form 8606 keeps track of your basis and the taxable amount is based on a calculation with the total IRA balance at the year-end of the taxable year.  Your basis is decreased every year once you start taking out the distributions. If you have made non-deductible IRA contributions and you don't see the Form 8606, that means something is wrong somewhere.  You may need to amend your return depending on additional details.  Form 8606 is a stand-alone form and can be filed anytime by itself. 

[marctu]

@ chia thank you for the question.  So, you may need to expand on your question, so that I can answer it fully. When were your non-deductible contributions made prior to 2022?  It appears based upon your question that you did a Backdoor Roth in 2022.

First, Form 8606 is to report several transactions relating to what the Internal Revenue Service (IRS) calls "Individual Retirement Arrangements" and what most people just call IRAs. These are accounts that provide tax incentives to save and invest money for retirement.

Non-deductible contributions that are reported on Form 8606, when there is not a Backdoor Roth, are subject to the Pro-Rata Rule, which is when you make nondeductible contributions to an IRA, a certain percentage of your RMD is tax-free. However, because you made after-tax contributions, your overall pool of assets subject to RMDs increases.

All the best,

Marc T.

TurboTax Live Select Time Tax Expert

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