Form 8606

L1: Form 8606In Form 8606 is it common for the taxable portion of the SEPP distribution to be smaller if the total basis (line 14) is nearly the same as the total basis of traditional IRAs (line 2)? Thank you.2011-01-18 17:13, By: johnnyg, IP: [66.232.90.254]
L2: Form 8606It’s easier to answer your question if you give us your specific figures.
Usually these figures are the same, unless you had made “non-deductible” contributions in the past. These “non-deductible” contributions are what establishes “basis” in an IRA.
By the way, you can have “basis” also if you had rolled over “after tax” contributions to older retirement plans, rather than taking a tax-free distribution at the time.
Be careful. There is no such thing as a “Non-Deductible IRA Account”. Brokers and mutual fund companies have no idea what portion of your IRA account is “non-deductible basis”. Onlly the taxpayer and the tax preparer know this based upon having filed a form 8606 whenever the non-deductible contribution was made. If that form was never filed, you can file it any any time for any previous year. It is one of the very few “standalone” forms which you can file with a signature after having filed a tax return.
All traditional IRAs are considered part of the total IRA universe, and the “non-deductible basis” is used to determine the applicable RATIO of all distributions which is non-taxable. You cannot cherrypick only the non-deductible portion to distribute initially, or at any time. It is a lifetime factor.2011-01-18 18:31, By: dlzallestaxes, IP: [207.7.177.44]

L3: Form 8606dlzallestaxes/Alan
Many thanks for your responses. Here’s a little more detail; I have had a 72T with one IRA account active since 1995 with a 3300.00 distribution annually. My 2009 8606 form breaks down as follows; 1 – 0, 2 – 6742, 3 – 6742, 4 – 0, 5 – 6742, 6 – 1646555, 7 – 3300, 8 – 0, 9 – 1649855, 10 – .004086420, 11 – 0, 12 – 13, 13 – 13, 14 – 6729, 15a – 3287, 15b – 0, 15c – 3287. In 2009 I received a lump sum distribution from my union AND rolled it into ANOTHER IRA account which changed the value of my IRA’s however my basis for 2010 is only 3287!! Should the lump sum distribution be included to raise my basis for 2010 ( Line 1?). Did my accountant make a mistake. I’ve gone back to 2004 and charted all the values in form 8606 and there hasn’t been a taxable amount over 2000.00 and now with the basis calculated at 6742 in 2008 and 6742 in 2009 I’m paying tax on basically the entire distribution. THANKS IN ADVANCE.2011-01-19 01:23, By: johnnyg, IP: [64.184.243.111]

L2: Form 8606Very generally, the closer line 14 is to line 3, the smaller the amount of basis applied to the distributions, since line 14 is the amount of basis remaining to carry into 2011. Line 13 is the amount of basis used in 2010.
This question is complicated if you have more than one IRA. For example, if you have other IRAs outside your SEPP to which you made non deductible contributions or taken distributions, your SEPP is not affected with the exception of the taxable portion of your SEPP distributions.
But if your only IRA is the one for your SEPP, there will be NO contributions or non SEPP distributions. In that case, if line 14 did not diminish much from last year, then your basis as a % must be small.2011-01-18 18:47, By: Alan S., IP: [24.119.230.17]

L3: Form 8606dlzallestaxes/Alan
Many thanks for your responses. Here’s a little more detail; I have had a 72T with one IRA account active since 1995 with a 3300.00 distribution annually. My 2009 8606 form breaks down as follows; 1 – 0, 2 – 6742, 3 – 6742, 4 – 0, 5 – 6742, 6 – 1646555, 7 – 3300, 8 – 0, 9 – 1649855, 10 – .004086420, 11 – 0, 12 – 13, 13 – 13, 14 – 6729, 15a – 3287, 15b – 0, 15c – 3287. In 2009 I received a lump sum distribution from my union AND rolled it into ANOTHER IRA account which changed the value of my IRA’s however my basis for 2010 is only 3287!! Should the lump sum distribution be included to raise my basis for 2010 ( Line 1?). Did my accountant make a mistake. I’ve gone back to 2004 and charted all the values in form 8606 and there hasn’t been a taxable amount over 2000.00 and now with the basis calculated at 6742 in 2008 and 6742 in 2009 I’m paying tax on basically the entire distribution. THANKS IN ADVANCE.2011-01-19 01:25, By: johnnyg, IP: [64.184.243.111]

L4: Form 8606>>Should the lump sum distribution be included to raise my >>basis for 2010 ( Line 1?). Did my accountant make a mistake.
Not unless the amount of the lump sum distributioncontainedafter tax contributions. If it was all pre-tax dollars (which most pension plans are)then there would be no increase in your basis.The 1099 that you received at the time of the distribution would have given you the taxable & non-taxable amounts.2011-01-19 01:39, By: Gfw, IP: [24.148.10.164]

L5: Form 8606Many thanks George. The 1099-R for the pension distribution has only the gross distribution, no other notations on the 1099-R. Additionally, I rolled a 401k into the IRA and the only notation is total distribution as well as a money purchase plan mutual fund which again is a total distribution notation. How is it that I can change the value of my IRA’s by 1.6 million and there isn’t a change to basis? Will the basis eventually become zero?2011-01-19 01:56, By: johnnyg, IP: [64.184.243.111]

L4: Form 8606Obviously you do not understand what “basis” means in this context. It is NOT the value of what you contributed.
It is the value of “non-deductible”, i.e.TAXED CONTRIBUTIONS to your IRA. The 8606 form provides a way to recover these previously taxed contributions from all of the distributions over your lifetime.
When you did the rollover of your limp sum, you merely increased the denominator of the fraction. Since this had not been previously taxed, it does not change the numerator of the fraction.
You have a good accountant who knows what he is doing. He understands it better than his client does.
For example, if your “non-deductible basis” was $ 4,800 and the total value at the end of 2009 was $ 100,000, then 4.8% of any distributions in 2010 would be non-taxable to the extent of 4.8% of those distributions. Let’s assume that the VALUE at 12/31/2010 was $ 120,000 then 4% of any distributions in 2011 would be non-taxable to the extent of 4% of those distributions. However, let’s say that you did a rollover of $ 120,000 during 2010, then the numerator would still be $ 4,800 as the amount previously taxes, but the denominator of the entire IRA (s) would be $ 240,000, and then any distributions in 2011 would be non-taxable to the extent of 2% ( $ 4,800/$ 240,000). If nothing changed thru the rest of your lifetime, then 2%of the$ 240,000 total distributions would be non-taxable, or $ 4,800 over your lifetime.
Be careful, however, because the 8606 form is actually trickier than that if you take a distribution in the year that you transfer something in from a 401-K or other employer retirement plan. It reduces the non-taxable factor in a way similar to the above example, and in effect treats the new “contribution” as if it were part of the IRA as of the end of the prior year.
2011-01-19 01:47, By: dlzallestaxes, IP: [207.7.177.44]

L5: Form 8606dlzallestaxes, thanks for the good information. You’re correct my accountant is much better at this however I continue to try and become educated. I understand basis a little better thanks to the example. I didn’t start my distributions until 2010 with all transfers occuring in 2009. Thanks again for the help.2011-01-19 02:54, By: johnnyg, IP: [64.184.243.111]