Treating Traditional IRA With Some After Tax Contributions

petec

While working I made after tax contributions to my 401k. I retired in 2008 and rolled the 401k into a Traditional IRA. When I did that I received a 1099-R showing a gross distribution (box 1) amount and a Box 5 amount. I was taking a total distribution.

In 2018 I began taking a RMD from the account but I forgot about the Box 5 amount. I continued to take RMDs in 2019, 2020, 2021, 2022, and 2023 but never allowed for the Box 5 amount.

What should I have done and what should I do now to correct it?

rachels

Hi petec,

For a traditional IRA contribution, if you made some after-tax contributions to the account, you will typically have part of the distribution be non-taxable. In your FreeTaxUSA account, after entering your 1099-R, you will be asked about your basis in the traditional IRA account. To get to that screen:

1. Go to Income > Retirement Income (1099-R).
2. Answer "No, Continue" on that screen.
3. You will reach the screen titled, "Prior Year IRA Contributions."
4. You can answer YES on that screen asking whether you had a nondeductible traditional IRA contribution on any prior tax return.
5. The next screen will then ask about your basis in your traditional IRA. Your basis is essentially the nondeductible contributions you made to the traditional IRA.

You can amend your prior year tax returns to correct any issues related to this. Go to www.freetaxusa.com and click the "Prior Year" link to sign into our software for the years you need to amend.

For more information on the taxability of IRA distributions, see:

https://www.irs.gov/publications/p590b#en_US_2023_publink100090039