Comingling pre/post-tax contributions in IRA

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Subject Author Date Comingling pre/post-tax contributions in IRA nomail1983@hotmail.com 09-06-2007  Re: Comingling pre/post-tax contributions in IRA Herb Smith 09-08-2007  Re: Comingling pre/post-tax contributions in IRA Barry Margolin 09-08-2007  Re: Comingling pre/post-tax contributions in IRA Brew1 09-08-2007  Re: Comingling pre/post-tax contributions in IRA Don Priebe 09-08-2007  Re: Comingling pre/post-tax contributions in IRA bono9763@yahoo.com 09-08-2007  Re: Comingling pre/post-tax contributions in IRA Tom Russ 09-08-2007  Re: Comingling pre/post-tax contributions in IRA rlsusenet@NOSPAMPUHLEEZsc... 09-09-2007  Re: Comingling pre/post-tax contributions in IRA Ernie Klein 09-09-2007  Re: Comingling pre/post-tax contributions in IRA Rich Carreiro 09-10-2007  Re: Comingling pre/post-tax contributions in IRA Arthur Kamlet 09-09-2007
Posted by nomail1983@hotmail.com on September 6, 2007, 9:34 pm Please log in for more thread options I know I need to study IRS Pub 590, but I am hoping some kind soul will offer some educated insights .... As I recall, it is best to avoid comingling pre- and post-tax contributions in IRAs. I think it simplifies things when determining the tax on distributions. Is that right? Or does the IRS require that you prorate the taxability of distributions across all IRAs, independent of the ratio of pre-tax and post-tax contributions in each IRA that funds were actually distributed from? Assuming that I am correct about perferring to keep pre- and post-tax contributions in separate IRAs, is there anything I can to correct the situation if I inadvertently comingled them? I am talking about effecting a correction, if possible, within a few days after I pushed the button to consolidate the separate IRAs. (I forgot why I was keeping them separate in the first place, and I decided to consolidate two IRAs that I have at one brokerage firm.) If I simply create a new IRA and fund it with the amount of the post-tax IRA before consolidation, would that be sufficient. It is not clear to me how the IRS, decades later, know how much of an IRA was funded with pre-tax contributions and how much with post-tax contributions. But if it matters, the pre-tax IRA, which now includes some post-tax contribution and its earnings, was designated as a Rollover IRA when the account was opened. (I'm not sure that designation has stuck with the account since then. I need to check records.) << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Herb Smith on September 8, 2007, 12:26 am Please log in for more thread options > I know I need to study IRS Pub 590, but I am hoping some > kind soul will offer some educated insights .... > > As I recall, it is best to avoid comingling pre- and > post-tax contributions in IRAs. I think it simplifies > things when determining the tax on distributions. Is that > right? Possibly, but as long as you maintain accurate records and file your 8606 form whenever you make a post-tax (nondeductible) contribution, it should not be a problem. > Or does the IRS require that you prorate the taxability of > distributions across all IRAs, independent of the ratio of > pre-tax and post-tax contributions in each IRA that funds > were actually distributed from? Correct > Assuming that I am correct about perferring to keep pre- and > post-tax contributions in separate IRAs, is there anything I > can to correct the situation if I inadvertently comingled > them? > > I am talking about effecting a correction, if possible, > within a few days after I pushed the button to consolidate > the separate IRAs. > > (I forgot why I was keeping them separate in the first > place, and I decided to consolidate two IRAs that I have at > one brokerage firm.) > > If I simply create a new IRA and fund it with the amount of > the post-tax IRA before consolidation, would that be > sufficient. If you haven't read Pub 590 you may not be aware of a fundamental truth about IRA accounts: No matter how many individual accounts, brokers, etc that you use, the IRS considers ALL these subaccounts to be part of a SINGLE IRA account. Whether you physically separate your pre- and post-tax contributions is irrelevant, each withdrawal is effectively taxed as prorated amounts of each in all your subaccounts. This is true regardless of which account you tap for the withdrawal. As I stated above, form 8606 is the route that you use to track the taxability of such withdrawals. > It is not clear to me how the IRS, decades later, know how > much of an IRA was funded with pre-tax contributions and how > much with post-tax contributions. But if it matters, the > pre-tax IRA, which now includes some post-tax contribution > and its earnings, was designated as a Rollover IRA when the > account was opened. > > (I'm not sure that designation has stuck with the account > since then. I need to check records.) See above. << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Barry Margolin on September 8, 2007, 12:26 am Please log in for more thread options > I know I need to study IRS Pub 590, but I am hoping some > kind soul will offer some educated insights .... > > As I recall, it is best to avoid comingling pre- and > post-tax contributions in IRAs. I think it simplifies > things when determining the tax on distributions. Is that > right? No. > Or does the IRS require that you prorate the taxability of > distributions across all IRAs, independent of the ratio of > pre-tax and post-tax contributions in each IRA that funds > were actually distributed from? That's correct. What you may be thinking of is that you shouldn't comingle rollover and contributory IRAs, because the rollover IRA can be rolled into another employer plan later (although there are few reasons why one would want to do so -- the only one I can think of is so that you can then take a loan from the employer plan). -- Barry Margolin, barmar@alum.mit.edu Arlington, MA *** PLEASE don't copy me on replies, I'll read them in the group *** << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Brew1 on September 8, 2007, 12:26 am Please log in for more thread options > I know I need to study IRS Pub 590, but I am hoping some > kind soul will offer some educated insights .... > > As I recall, it is best to avoid comingling pre- and > post-tax contributions in IRAs. I think it simplifies > things when determining the tax on distributions. Is that > right? > > Or does the IRS require that you prorate the taxability of > distributions across all IRAs, independent of the ratio of > pre-tax and post-tax contributions in each IRA that funds > were actually distributed from? > > Assuming that I am correct about perferring to keep pre- and > post-tax contributions in separate IRAs, is there anything I > can to correct the situation if I inadvertently comingled > them? > > I am talking about effecting a correction, if possible, > within a few days after I pushed the button to consolidate > the separate IRAs. > > (I forgot why I was keeping them separate in the first > place, and I decided to consolidate two IRAs that I have at > one brokerage firm.) > > If I simply create a new IRA and fund it with the amount of > the post-tax IRA before consolidation, would that be > sufficient. > > It is not clear to me how the IRS, decades later, know how > much of an IRA was funded with pre-tax contributions and how > much with post-tax contributions. But if it matters, the > pre-tax IRA, which now includes some post-tax contribution > and its earnings, was designated as a Rollover IRA when the > account was opened. > > (I'm not sure that designation has stuck with the account > since then. I need to check records.) after tax (nondeductible) contributions have to be reported (by you) on Form 8606 for the year they apply. Otherwise you pay tax twice on that money. When you take money out, you use Form 8606 to determine the amount that is taxable--you will be asked for the value of ALL your traditional IRA's at the end of the year to calculate the percentage that is taxable. A Roth IRA is different, with distributions considered in order of contributions, conversions, and earnings. Other than keeping things simple, I don't see a drawback from commingled funds. << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Don Priebe on September 8, 2007, 12:26 am Please log in for more thread options > Or does the IRS require that you prorate the taxability of > distributions across all IRAs, independent of the ratio of > pre-tax and post-tax contributions in each IRA that funds > were actually distributed from? Yes. See the instructions for form 8606. -- Don EA in Upstate NY << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted 401(k) Contributions February 12, 2007, 12:04 am Credit for 401(k) contributions March 28, 2007, 5:15 pm excess ira contributions 9 yrs ago March 25, 2008, 10:00 pm Post-Tax 401-K Contributions April 18, 2008, 6:13 pm Re: Retirement Contributions April 12, 2006, 11:28 pm non deductable IRA contributions October 17, 2008, 5:05 pm HSA contributions/ W-2 reporting February 2, 2009, 6:18 pm Need help with excess Roth IRA contributions ... 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