Non deductible IRA account segregation
My understanding is that keeping a Non deductible IRA account separate from IRA accounts with $0 cost basis does not allow you to take distributions from the Non deductible IRA without going through the pro-rata cost basis calculation that takes into account all IRA account balances. Is this correct?
I believe at some time in the past you could keep the accounts separate and treat them separately. Did this change with the creation of the Roth IRA?
Thanks,
Steve
Permalink Submitted by Alan Spross on Fri, 2008-05-16 22:53
Steve,
You are correct. You can take the distribution from any traditional IRA account you wish, but the tax result is the same. All the accounts are considered as one combined account to determine the pro rated account basis. Form 8606 is used to calculate and report this. This calculation includes all traditional. SEP, and SIMPLE IRA accounts owned.
The Roth IRA had no effect on this, and the above rules have been this way all along. However. advisors used to recommend keeping rollover IRA accounts separate in case an employer plan would offer to accept the funds to be rolled back into an employer plan. This also changed back in 2002.