After tax IRA (not Roth)contributions made. Who decides which funds a

[Guest irr7342]

If I contributed $22,000 to a regular IRA, all on an after tax basis (didn't qualify for the deduction)and now the account is worth $32,000, now that I'm over 59 1/2, can I withdraw the $22,000 now, not pay taxes, and then transfer the taxable $10,000 to my rollover IRA account? Is there a defined method for withdrawing funds from this account or is it up to me to decide which funds I'm withdrawing (after tax contribution $ or pre tax earning $)? Thanks

[BPickerCPA]

The IRS decides. The law says that (1) all of your IRAs are deemed to be one account (even if you have, for example, physically segregated this account from an IRA rolled over from an employer), and (2) every withdrawal is considered a portion of the non deductible contribution and a portion of the taxable portion of the IRA.

Example: You've contributed $22,000, non-deductible and that account is worth $32,000. You also have a rollover IRA of $188,000. Since the total of the IRAs is $220,000, your basis of $22,000 represents 10% of the balance, so 10% of each withdrawal is not taxable, and 90% is taxable. See form 8606.

[Fred Payne]

Barry, your answer suggests that for each withdrawal, 10% is recovery of basis. I have only looked at the Form 8606 briefly recently, but it seems to me that each calendar year one must perform the calculation anew. Given a declining basis and market fluctuations, the percentage recovered each year as tax-free could change.

[Mary Kay Foss]

Barry gave a great example and I don't think it leads to the conclusion that 10% is tax free each year.

The calculation on Form 8606 is made each year that a distribution is claimed based upon the fair market value and unrecovered basis for that year.