taxes on periodic IRA distribution with mixed taxable contribs | Ed Slott and Company, LLC

taxes on periodic IRA distribution with mixed taxable contribs

I have paralyzed myself with indecision about what to do with my IRA.

It has both taxable and non-taxable contributions. I am so confused about how to calculate the taxable amounts on a distribution that, almost in despair, I am considering converting the entire thing to a Roth.

That doesn't make much sense because I will have to use the IRA proceeds to pay the taxes.

What I really, really need is a software that can calculate the taxable percentage of an IRA distribution on an ongoing basis.

In other words, if I set up monthly payments of dividends from the IRA account, I need software to calculate how much each month I have to declare as income.

Does such software exist?

Thanks in advance for any assistance you can lend.

  • Any tax program will calculate the taxable amount for a distribution or conversion, or you can download a Form 8606 and fill it out yourself. Basically, all you need to know is the current year and value of all your non Roth IRAs (you must estimate that since year end is not here yet) and your IRA basis on your last 8606 line 14. With those two figures, the math is fairly easy. The tough part is knowing your basis to begin with since failing to track that basis can lead to a very difficult amount of research.  
  • Since the calculation is the same whether you are taking a distribution or converting, if you do not know your basis, converting will result in paying double taxes.  
  • Did you file Form 8606 when making prior non deductible contributions? If you did, just locate the last 8606 you filed and it will show your total basis on line 14. If you made regular Roth contributions in any year, then you probably did not make non deductible TIRA contributions.
 

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