Originally Posted by reds0318
#1;Opened a very small IRA in 1996 with divided assets from divorce. Never submitted form 8606 to establish cost basis for this IRA.
#2;Took distribution (age 61) this year. Will I need to pay taxes on the entire amount? I show the original start amount of the IRA but have no tax documents going back that far to show if it was deducted or not.
#1; Basically, you need to file Form 8606 for every year you contribute after-tax amounts /non-deductible IRA contribution to your Traditional IRA, and every year you receive a distribution from your IRA as long as you have after-tax amounts, including rollovers of after-tax amounts from qualified plans, in any of your ira.Even though Form 8606 is normally submitted with a timely filed Form 1040, the IRS will process a late-filed Form 8606 even one that is filed after the normal 3year SOLs for claiming a refund has expired; If you are required to file Form 8606 to report a nondeductible contribution to a traditional IRA for 2010, but do not do so, you must pay a $50 penalty, unless you can show reasonable cause. However, you usually are not charged a late fee for any of them.
#2;Since you have after-tax amounts in your Traditional IRA, you must, when taking a distribution, determine how much of the distribution is attributable to the after-tax amount. The portion of the distribution that is non-taxable must be pro-rated with amounts that are taxable. For instance, say , you contributed $2K in after-tax amounts and has a pretax balance of $8K, a distribution of $5K would be pro-rated to include $1K after-tax and $4K in pretax assets. This pro-rata treatment must continue until all the after-tax amounts have been distributed.