N/D IRA Basis
We set up N/D IRAs for our clients in separate accounts years ago, with the intention of treating the basis separately from their IRA Rollovers. This tax season, an accountant with whom we work extensively said that even though they are in separate accounts, the basis has to be included with all other IRAs, and a ratio must be used to figure out what portion is taxable. Is this the case? If we can keep them separated, can you point me to the tax code that supports our original plan?
Thanks so much for your help!
Permalink Submitted by Alan - IRA critic on Wed, 2018-04-11 15:46
The accountant is correct. For purposes of basis application all owned non Roth IRAs are treated as a combined account and that amount must be entered on line 6 of Form 8606. The basis therefore applies to all such IRAs so it does not matter which IRA account received the ND contribution and it does not matter which account issued the distribution, since Form 8606 will produce the same taxable amount.