Distribution of Non Deductible IRA contributions

Submitted by Alan Dadourian on Sat, 2017-03-04 16:56

I want to take a distribution of the non-deductible portion of my traditional IRA of $7,000 and move the funds to either (a) existing my Roth IRA (if permitted) or (b) my regular investment account; I have filed a Form 8606 each year with good record-keeping. This $7,000 is a smaller portion of my traditional IRA; other funds in this IRA have been converted from corporate 401(k) plans that were consolidated into this single IRA over the last few years. I have already reviewed the IRS Pub 590B for Distributions from IRAs and its forms and worksheets.

Question #1: How do I calculate the “growth” on this $7,000 over many years going back to the 1980s in my traditional IRA when taking this distribution?
Question #2: What is the tax implication of the “growth” that is attributed to the $7,000 when moving these funds?
Question #3: Is this the best approach, or is there a better method to cleaning up this situation from an estate planning perspective?

thanks for your inputs and ideas!



Submitted by Alan - IRA critic on Sat, 2017-03-04 17:27

  1. You do not calculate the growth on any contribution. Form 8606 is much simpler than that. It just asks for the total value of all your non Roth IRAs on line 6, then determines what % your total of non deductible contributions is of that total. DIstributions are pro rated, so you CANNOT just remove the non deductible contributions separately.
  2. Again, growth of the total value in all your non Roth IRAs just dilutes the % of your non deductible contributions and results in any distribution you take having a higher taxable %. Losses result in a lower taxable %.If your IRA has no investment gains or losses, the % of your distribution that is taxable does not change from year to year.
  3. You really cannot eliminate your basis until you distribute your entire IRA or convert it. Your beneficiary inherits the basis that remains and also has to deal with Form 8606 every year, since generally there will be RMDs every year. There are a couple of other ways to eliminate the basis, such as rolling everything but the basis into a current employer plan (not usually possible if you are retired), then converting the basis to a Roth IRA tax free.
  4. You might read the thread “IRA distribution after age 59.5” as it addresses nearly the same situation you have. In short, you cannot do what you were planning to do. Finally, since Form 8606 combines all your non Roth IRAs it does not matter whether you combined all the prior accounts or not.


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