IRA monthly income distributions | Ed Slott and Company, LLC

IRA monthly income distributions

I am searching for a program (e.g., Turbotax) that will help my with monthly distributions from an IRA that includes contributions that are not taxable. In other words, my IRA has both taxable and non-taxable contributions. I can't figure out how to pay the taxes on the percentage of distributions that are taxable, particularly if there is more than one distribution.

I don't really want to have to convert the entire IRA to a Roth, but--for the life of me--I can't figure out how to report the income on more than one distribution from an account that has both taxable and non-taxable contributions.

Any help is greatly appreciated.

Thank you.

  • The IRA custodian will add up all your separate distributions and show the total on a single 1099R form. However, that 1099R will show the entire total as taxable in Box 2a. But the 2a taxable amount is only provisional, and you will override that by filing Form 8606 to report your total distributions. To do that you must have filed an 8606 for every year in which you made a non deductible non Roth IRA contribution. It is up to you keep this current, but your last 8606 form will show the total amount of non deductible contributions you have left on line 14. That line 14 amount is brought forward to the Form 8606 you must file to report the distribution and that form (actually your tax program) calculates the taxable amount of the distribution, then shows the amount of non deductible contributions (known as IRA "basis") on line 14 of the current 8606 which is then used for future forms.  
  • Note that no matter how many non Roth IRAs you own, they are all treated as one combined account and Form 8606 covers all of them. Other data that goes into the form completion is your total year end value of all such IRA accounts. The only real challenge here is knowing your basis if you have not been filing the 8606 form each year you made a non deductible contribution, since re constructing this info can be very difficult.
  • You should not convert unless it is otherwise beneficial to do so, since conversion will not solve your problem if you do not know your basis, since you would not be able to properly report the conversion and might be forced into double taxation.
  • Once you know your IRA basis, the higher the % that basis is of your total IRA value, the more beneficial it is to convert, since you will be taxed less for the conversion the higher your basis is.

As you have successfully anticipated, my problem is the 8606 form.  Is there software to reconstruct the 8606 forms that should have been filed?  Will I have to request all my tax returns for 40 years? Thanks.

I don't think the IRS can provide tax transcripts for more than 10 years back.  How many years of tax returns have you kept?  Have you kept the Form 5498 you get every year to report IRA contributions you made? How long have you been with your current IRA custodian, and how many non Roth IRA accounts have you been maintaining?

I have an annuity with a life income benefit in a Roth IRA. Can the once annual income be transferred custodian-to-cutodian to a different Roth IRA rather than taking it as a distribution?

Yes, it can be transferred to another Roth IRA under IRS rules, but the life insurer may not wish to cooperate.

 

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