The recovery of basis in a traditional IRA is all handled on Form 8606, which is also the form on which the non deductible contribution had to be reported in each year such a contribution was made. Following the form, with help from the 8606 Inst if needed will result in pro rating the basis over all their TIRAs, SEP IRAs and SIMPLE IRAs to come with a pro rate factor for the taxable amount. This applies to all distributions including Roth conversions and RMDs. The taxable amount is then shown on line 15b of Form 1040, and the 8606 shows the amount of basis remaining in the IRA for future years.

There is no limit on the amount and frequency of distributions. If several distributions are taken in a calendar year, the custodian just adds them up on the 1099R, but will NOT be able to show a taxable amount because the custodian has no idea what a taxpayer’s basis is. This is between the taxpayer and the IRS. If a taxpayer has failed to properly report their non deductible contributions in the past, they are able to file the forms retroactively, and the IRS has been waiving the penalty to do so.

Note that under the 8606 formula and as noted above, it does not matter which account the taxpayer uses to fund the distributions, since all the IRA types listed above are considered to be just one combined account. The final adjusted value on the 8606 is the value at the end of the year the distributions are taken out, and there is a single pro rate factor, not a different one for each distribution.

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