The client needs to file Form 8606 for each year he makes a non deductible contribution. Since 176,000 is more than the regular contributions could total on their own, the only way he could acquire that much basis in his IRA is to have rolled over after tax contributions from a qualified plan. For those after tax rollover amounts, the 8606 is not filed until the first year a distribution is taken, and the after tax rollover amount is reported on line 2.

If the 176,000 is correct, that amount of basis will not change until he takes distributions. Distributions are also reported on Form 8606 and the form generates the taxable amount. In this case, if 35.2% is the % of basis (176k/500k) then any distribution is 35.2% tax free. A distribution of 10k will include 3,520 that is not taxable and his remaining basis in his IRAs will be reduced to 172,480. All growth and pre tax contributions are taxed at ordinary income rates.

If his IRA generates earnings, his basis % drops, but if the IRA has losses, the basis % rises.

If he has not filed the 8606 for past years in which he made non deductible contributions, he can catch them up. But for a rollover of after tax amounts from an employer plan, he can just make a note of the amount and report it on the next 8606 he would need to file because of a distribution.

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