RMD for IRA with cost basis
is there a way to simplify taxability of RMDs for an IRA with cost basis. is it possible to rollover over only the earnings of the IRA into a separate IRA and leave cost basis in int’s own IRA. i do understand that the “cost basis” IRA will still have some gain, but might be easier to separate the two if possible.
thank you
Permalink Submitted by Alan - IRA critic on Wed, 2023-05-31 15:38
Because all non Roth IRAs are treated as one combined IRA for tax purposes, there is no reason to combine accounts. Form 8606 is used to determine the taxable portion of all distributions and line 6 of that form asks for the value of all such IRA accounts, regardless of which account funds the RMD. However, there is no exception to these pro rate rules – if the IRA owner is still working and the employer 401k or similar plan will accept IRA rollovers, the pre tax balance of all IRAs can be rolled into the 401k leaving only the IRA basis in the IRAs. This basis can then be converted to Roth tax free. All IRA RMDs must be completed before rolling into the 401k. Otherwise, the taxpayer is stuck with Form 8606 every year, but tax programs handle the 8606 completion easily.