ERTA after tax contributions establishing cost basis
During the early 1980’s there was a tax act called ERTA that allowed me to contribute $2000 of after tax money into an IRA for the years 1981 through 1985 (5 contributions in that time frame). I am now required to take a RMD form that IRA. How do I treat the cost basis attained by the after tax contributions so I am not taxed twice?
Permalink Submitted by Alan - IRA critic on Mon, 2021-12-20 18:28
ERTA allowed you to contribute 2000 (1500 for 1981) if you had a workplace plan, but I cannot locate any resource stating these contributions could have been non deductible. Form 8606 was first introduced to report ND contributions starting in 1987 and that form had no place to report any prior ND contributions. Therefore, it appears that if you did not deduct your 1981-1985 contributions for any reason, you will not be able to report IRA cost basis for those years. There is no 8606 editions for any of those years. Unfortunately, this might result in double taxation of up to 9,500 of your IRA, which is likely to be a minute % of your total IRA balance. But this also spares you the hassle of pro rating your IRA distributions every year from here out.
Permalink Submitted by Jeffrey Fine on Mon, 2021-12-20 19:38
Well, that certainly was not the game plan when I originally funded this IRA with after tax dollars. But I do appreciate your expertise. Thank you.