Cost Basis in IRA used for RMD

Submitted by Ryan Smith on Mon, 2017-11-13 15:11

We have a client that has a $47k RMD this year, which is the year they turned 70.5. They had an IRA with a cost basis of $10,000. They liquidated that IRA for a total of $20,000.
1. Does all $20,000 count towards their RMD or does only $10,000 (gain) count towards it? (not sure how the basis affects the RMD)
2. Can they defer the other $27k until next tax year as this is their first RMD year?
Thanks.



Submitted by Alan - IRA critic on Tue, 2017-11-14 00:33

  • All distributions in an RMD year count toward the RMD regardless of whether the distributions are taxable or not. Client still has 27k left but that 27k can be distributed any time from now up to 4/1/2018.  Client should figure out which year he wants that 27k to be taxed.
  • The actual amount of the 47k that is taxable is determined by Form 8606. Any tax basis from non deductible contributions that was reported on Form 8606 is applied pro rata over all IRA accounts regardless of which IRA account received the non deductible contributions. Therefore 10/total year end adjusted value of all IRAs will be the non taxable portion of the 20k distribution and the 27k distribution if taken out this year. If taken out next year, the same process applies but the amount of remaining basis will be somewhat less and the adjusted 2018 year end value will also have changed. Whatever % of his distributions are non taxable, that % will stay the same each year if the IRAs have no gain or loss. Client will have to file an 8606 every year now that RMDs have begun. This is no big deal if tax software is used to prepare his tax return.

Submitted by Ryan Smith on Tue, 2017-11-14 02:02

Excellent, thanks!!

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