Inherited IRA Tax Basis
March 27th, 2007
An IRA owner has 3 IRAs:
- One SEP IRA (account A)
-
- valued at $15,000,
- consisting of only deductible contributions and earnings,
(no deductible contributions or earnings on the account),
- valued at $10,000.
If the IRA owner distributes $5,000 from account C, and if the IRA owner only looked at the source of the distribution and not the entire IRA picture, the distribution would seem to not be subject to tax.
However, the entire IRA picture does include deductible contributions and earnings, and, therefore, a portion of the distribution would be taxable.
Recall Formula:
| Total of all Non-Deductible Contributions to all Traditional IRAs | ||||
| ____________________ | X | Total distributions or conversions for the year | = | Non-taxable portion of the distribution or conversion |
| Year-end value of all Traditional and SIMPLE IRAs, plus any distributions or conversions during the year |
Non Taxable Portion is:
| $10,000 | ||||
| ____________________ | X | $5,000 | = | $217.39 |
| $225,000+$5,000=$230,000 |
Therefore, Taxable Portion is:
$5,000 – $217.39 = $4,782.61
Posted in 
Tags: