Cost Basis for IRA or retirement accounts
There is much hype on Cost Basis reporting.
(a) Is this applicable for IRA or retirement type of accounts?
(b) I guess there is no need of choosing any methods average basis, FIFO or specific share ID for IRA or retirement accounts.
(c) Basically all distributions taken after age 59 1/2 will be taxable income irrespective to compute how much was gain or loss?
(d) Are there any other means of computing the taxable income to be lower?
Permalink Submitted by Gordon Weis on Thu, 2010-10-28 14:05
If any after tax contributions have been made, part of each distribution will be taxable and part will be a return of basis.
After tax contributions are reported on IRS form 8606 – the link that follows will take you to the instructions – [url]http://www.irs.gov/pub/irs-pdf/i8606.pdf%5B/url%5D
Permalink Submitted by Alan Spross on Thu, 2010-10-28 15:51
a) Not applicable to retirement accounts, only to taxable accounts for which sales are reported on Sch D.
b) Correct
c) Distributions are taxable regardless of when taken; age 59.5 only affects the early withdrawal penalty. As gfw indicated, for taxable amounts for traditional IRA distributions the only factor that applies is whether there is basis from non deductible contributions or after tax rollovers as documented on your Form 8606
d) Roth IRA distributions are tax free once the Roth is qualified (5 year holding and age 59.5). If you convert you are paying taxes up front, possibly at a lower rate than you would pay if you took RMDs in retirement at the rates that apply then.