After Tax IRA

Submitted by Kevin O'Hearn on Tue, 2019-04-30 19:49

Hello,

An client has a traditional IRA that was funded with “after tax contributions” and has an RMD due in 2019. The RMD plan is using the Uniform table which is correct however the fact that “after tax contributions” funded the account is throwing me for a loop. Has anyone heard of an “after tax funds” in a Traditional IRA?

Any information would help. Thank you



Submitted by Alan - IRA critic on Tue, 2019-04-30 20:07

  • The non deductible contributions made over the years must have been documented by filing Form 8606 each year a contribution was made. These forms are cumulative, so looking at the last 8606 filed will show the total amount of IRA basis on line 14. This basis applies over all non Roth IRAs the client owns, it is not limited to the account that received the contributions if client has more than one non Roth IRA. Form 8606 is also filed to report IRA distributions and calculate the taxable amount of these distributions, RMDs or otherwise.
  • Example, total year end balance of all non Roth IRAs 192k. Basis from last Form 8606  20k. RMD 8k. In this situation 10% of the total adjusted year end value will be non taxable. 7200 of the 8k distribution will be taxable. Remaining basis for future years will be 19,200 since 800 was used for the 2019 RMD.
  • If client did not file the 8606 in past years and did not deduct a TIRA contribution made, these forms can be filed with the IRS retroactively, starting with the oldest year. 

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