Rollover IRA distribution

[JoanC1]

I took a distribution from my Rollover IRA and received a 1099-R from Fidelity.  Box 7 is coded as 7-Normal Distribution.  The Rollover IRA was created when I rolled over a former employer's retirement plan.  I don't remember what the former employer's plan was - could have been stocks.  However, when I rolled that over to Fidelity, they created a separate Rollover IRA account that has been sitting there for decades.  After entering the 1099-R info, TT asks me if I made any nondeductible contributions to my Traditional IRA from 2022 or prior years.  I did, so I answered Yes.  Then TT tells me it transferred my total basis for my Traditional IRA for all years through 2022.  The amount transferred is the total nondeductible contributions to my Traditional IRA in 2021.  Why is TT asking about my Traditional IRA nondeductible contributions and total basis when the 2023 distribution is from a Rollover IRA?

[MinhT1]

TurboTax needs to know the value of all your IRA accounts at end-year when you take a distribution or convert part of your IRA to a Roth IRA. This is to calculate the basis of the distributed or converted part by applying the pro rata rule.

When your traditional IRA has basis (from the nondeductible contributions) as reported on form 8606, you have to apply a prorated amount of basis to the distributed or converted amount.

Please read this IRS document for more information.

[JoanC1]

Further information on my original post:  TT also asks for the Value of my Traditional IRA.  TT mentions that the information can be found on Form 5498.  I did not receive a Form 5498 in 2023.  I did receive one in 2021 when I made the nondeductible contribution.  Do I need to enter the value of my Rollover IRA?  If so, where do I do that?

Does this new information change your first reply?

And to clarify, I have to report the value of my Traditional IRA for a Rollover IRA distribution?  They are separate accounts.  

[LeticiaF1]

Yes, you need to report the total value of your IRA, because based on your comments you did make nondeductible contributions.  To determine what your nondeductible contributions are in total, you will need Form 8606.  Form 8606 should have been filed with your tax return each year when you made after-tax contributions.  TurboTax uses this information to figure out the taxable amount of your distribution.  

Form 5498 is just an informational form from your brokerage firm that shows what your contributions were.   You will need the year-end statement from all your accounts to determine the total value of all IRAs on 12/31.  If you do not have this information contact your brokerage.  

If you have any other questions once you get all your information, feel free to reach back.  

[dmertz]

All of your traditional IRA accounts, including the rollover IRA, are considered in aggregate when determining the taxable amount of a distribution from any of your traditional IRAs.  Your basis in nondeductible traditional IRAs belongs to you, not to any particular one of your traditional IRAs.

[JoanC1]

This is all helpful information.   I do have my year end statements from my broker.  

Where my confusion is in my case is that I have 2 separate IRA accounts.  One is labeled  "Rollover IRA" and one is labeled "Traditional IRA".  Are they treated the same for tax purposes?  I'm not sure where to add those values in TT.  Do I just add both values together and enter them on the TT page that asks for the 2023 year end value of my Traditional IRA?  

[dmertz · Accepted solution]

The only place where you need to combine the values of these IRAs is where TurboTax asks you to enter the combined year-end value of all of your traditional IRAs, so yes, you'll need to add these values together yourself.  For Form 8606 to be prepared correctly, this value must be accurately entered.  Because you have a balance in traditional IRAs that is likely to be substantially above the amount of basis you have in nondeductible traditional IRA contributions, a small portion of each year's distributions from your traditional IRAs (no matter which IRA the distribution comes from because all of your traditional IRAs are treated as one) will be nontaxable, consuming an equal amount of your basis.