Deductible and non-Deductible IRA tax issue

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nickfrank
Posts: 26
Joined: Tue Feb 23, 2010 1:39 pm

Deductible and non-Deductible IRA tax issue

Post by nickfrank »

I will be paying income taxes on my IRA's for the first time in 2011 due to turning 70.5 in April. Will someone give me an example of how to determine the amount I need to divide by 27.4 to determine RMD. Is it simply subtracting the non-deduct. from the deduct. based on form 8606 records.

Thanks,
Nick
OhioGozaimas
Posts: 336
Joined: Wed Sep 12, 2007 2:27 pm

Post by OhioGozaimas »

Please clarify: Did you turn 70.5 in April 2010 (BD = Age 71 in Oct. 2010), or are you turning 70.5 in April 2011? Thanks.
Map out your future – but do it in pencil. – Jon Bon Jovi
kaneohe
Posts: 6687
Joined: Mon Sep 22, 2008 12:38 pm

Post by kaneohe »

It is simpler to just follow part I of form 8606 which will lead you by the hand, step by step, to the right answer. Thinking too much about it can give you a headache :).

http://www.irs.gov/pub/irs-pdf/f8606.pdf

edit: sorry, I misread your post. My answer is to determine tax on the distribution. You should divide the yr end value of all your TIRAs by the appropriate divisor from the appropriate table to get the total distribution.
The amount of this distribution should not depend on how much of your TIRAs are deductible/non deductible.........only on the total value at yr end. Of course, taxation will very much depend on how much is non-deductible.

Ohio is trying to determine which year you are talking about since there may be 2 yrs worth of RMDs to take if you wait too long. That might or might not cause a jump in tax brackets depending on the amount involved so sometimes it might be better to take the 1st RMD earlier, rather than later.

can't vouch personally for this calculator (google rmd calculator IRA to find others) but you can check vs your own calculations and other calculators for confirmation

http://www.kiplinger.com/php/ira/question.htm
Last edited by kaneohe on Fri Dec 03, 2010 12:37 pm, edited 2 times in total.
OhioGozaimas
Posts: 336
Joined: Wed Sep 12, 2007 2:27 pm

Post by OhioGozaimas »

Since you turn 70.5 in April (of whatever year), your first RMD Divisor will be 26.5, since you will attain Age 71 during the Tax Year.

The Numerator is the value of all IRA’s as of 12/31/previous-year.

If you are now Age 71, you should take the distribution by 12/31/2010 (this month), based on the total IRA balance(s) at 12/31/2009. (Otherwise you will need to take two distributions in 2011, one by April 15.)

(If you also have a 401(k), you need to take a separate RMD from the 401(k) only.)

The 8606 info becomes part of the Form 1040 tax-filing process, to determine how much of the distribution is taxable.

Hope this helps…
Map out your future – but do it in pencil. – Jon Bon Jovi
chaz
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Joined: Tue Feb 27, 2007 2:44 pm

Post by chaz »

Nick, if your IRA is with Vanguard, then Vanguard will tell you how much for the RMD.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page
the intruder
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Joined: Wed Oct 28, 2009 7:12 pm

Re: Deductible and non-Deductible IRA tax issue

Post by the intruder »

NICKFRANK wrote:I will be paying income taxes on my IRA's for the first time in 2011 due to turning 70.5 in April. Will someone give me an example of how to determine the amount I need to divide by 27.4 to determine RMD. Is it simply subtracting the non-deduct. from the deduct. based on form 8606 records.

Thanks,
Nick
If you turned 70.5 in April 2010 the MRD is the account balance on Dec 31, 2009 divided by 26.5. The nondeductible amount is the % the non deductible portion of IRA bears to the total IRA account value on 12/3/09. See IRS pub 590 P41.
MarkNYC
Posts: 1825
Joined: Mon May 05, 2008 7:58 pm

Post by MarkNYC »

OhioGozaimas wrote:
If you are now Age 71, you should take the distribution by 12/31/2010 (this month), based on the total IRA balance(s) at 12/31/2009. (Otherwise you will need to take two distributions in 2011, one by April 15.)
An IRA owner's Required Beginning Date (RBD) for taking minimum distributions is April 1st, not April 15th, of the year following the calendar year of turning age 70.5.
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