Unknown IRA basis

[Jim Prescott]

I'm helping someone who just started taking RMDs from a traditional
IRA. They have no idea of their basis. Contributions would have been
made in the 1970s & 80s and their tax records from that period are at
best fragmentary (although in at least two years it included letters
from the IRS questioning the deductibility of their IRA contributions
but no indication as to how the matter was resolved).

The IRA custodian doesn't have online records going back that far and
they probably wouldn't know basis anyway.

Can the IRS tell us when the last 8606 was filed and what was on it
(after any IRS changes)?

Is assuming $0 basis their only option at this point?

 

[Bill]

(e-mail address removed) (Jim Prescott) posted:

I'm helping someone who just started taking
RMDs from a traditional IRA. They have no
idea of their basis. Contributions would have
been made in the 1970s & 80s and their tax
records from that period are at best
fragmentary (although in at least two years it
included letters from the IRS questioning the
deductibility of their IRA contributions but no
indication as to how the matter was resolved).

The IRA custodian doesn't have online
records going back that far and they probably
wouldn't know basis anyway.

Can the IRS tell us when the last 8606 was
filed and what was on it (after any IRS
changes)?

Is assuming $0 basis their only option at this
point?

There is _no basis issue_ in a traditional IRA.
The RMD is based on the IRA balance as of the end of the previous year.

Now, if the TP was making "after tax" contributions to an IRA, and
wishes to withdraw those -- net without interest, of course -- then the
TP can request IRS for copies of returns for the years in question --
and could include in the request a specific query regarding Form 8606.
That particular amount can be withdrawn with no tax liability -- but
separate from the RMD.

The RMD can be computed by using Dec 31st 2007 balance as reported by
the Trustee on Form 5498 -- which should have been out by now. Anyway,
the TP should be able to get a confirmation, if the 5498 was misplaced,
and that balance figure is the only necessity for calculating RMD. See
Pub 590 and check the appropriate Appendix for your friend, to determine
the exact RMD.

Bill

 

[Rich Carreiro]

Now, if the TP was making "after tax" contributions to an IRA, and
wishes to withdraw those -- net without interest, of course

You can't withdraw non-deductible IRA contributions
like that. They come out pro-rata, with the denominator
being the total value of ALL the TP's traditional IRAs.
See Form 8606.

That particular amount can be withdrawn with no tax liability

No, it can't.

 

[Arthur Kamlet]

(e-mail address removed) (Jim Prescott) posted:





There is _no basis issue_ in a traditional IRA.
The RMD is based on the IRA balance as of the end of the previous year.

Now, if the TP was making "after tax" contributions to an IRA, and
wishes to withdraw those -- net without interest, of course -- then the
TP can request IRS for copies of returns for the years in question --
and could include in the request a specific query regarding Form 8606.
That particular amount can be withdrawn with no tax liability -- but
separate from the RMD.

Bill



Perhaps you are thinking about certain employer plans?



In most cases IRA distributions must be allocated between after tax and
pretax moneys based on basis and year end valuation. The 8606 does
that for you.


Special cases where you can take only pretax portion include the
currently defunct Qualified Charitable Distribution and the new
IRA to HSA conversion.


The usual distribution requires allocation.

 

[D. Stussy]

You can't withdraw non-deductible IRA contributions
like that. They come out pro-rata, with the denominator
being the total value of ALL the TP's traditional IRAs.
See Form 8606.


No, it can't.

Actually, it is without liability. However, it must be prorated as a ratio
applied to all distributions. It's not possible to withdraw ONLY the
post-tax contributions from a traditional IRA. Perhaps "Bill" was thinking
of the Roth IRA?

 

[Dan Lanciani]

| There is _no basis issue_ in a traditional IRA.

There may be for state tax purposes. Massachusetts does not allow a
deduction for IRA contributions and in turn does not tax withdrawals
until they exceed the sum of taxed contributions. Of course, they may
want proof of those contributions and they don't seem to understand
that a "1099" isn't it.

Dan Lanciani
[email protected]*com

 

[removeps-groups]

TP can request IRS for copies of returns for the years in question --
and could include in the request a specific query regarding Form 8606.

How far back to the IRS records go?

The instructions for line 6 of form 4506 say

<Quote source="http://www.irs.gov/pub/irs-pdf/f4506.pdf">

Tax return requested. (Form 1040, 1120, 941, etc.) and all attachments
as originally submitted to the IRS, including Form(s) W-2, schedules,
or amended returns. Copies of Forms 1040, 1040A, and 1040EZ are
generally available for 7 years from filing before they are destroyed
by law. Other returns may be available for a longer period of time.
Enter only one return number. If you need more than one type of
return, you must complete another Form 4506.

</Quote>

I imagine that if the returns are being analyzed for fraud, they may
be kept around much longer.

Request your prior year tax return is expensive. $39 for each
return. From 1970 to 2007 is 38 years, total of $1482. Probably your
client has the last few years tax return in their possession already.

Maybe there is a way to ask the IRS for a running total of the 8606 --
or perhaps the most recent return that had an 8606. Maybe you can
write "8606" in line 6, and in line 7 say most cent return with a form
8606, and in line 8b enter 1 return, and just enclose $39. Worst case
is they can write back in 60 days and ask you to pay more.

 

[Bill]

(e-mail address removed) (D. Stussy) posted:

Actually, it is without liability. However, it
must be prorated as a ratio applied to all
distributions. It's not possible to withdraw
ONLY the post-tax contributions from a
traditional IRA. Perhaps "Bill" was thinking of
the Roth IRA?

D. Stussy nailed it. I was addled in my thinking -- torn between the
"RMD" issue and the FIFO application to early Roth distributions. Mea
Culpa. Appreciation the clarifications, all.

Bill