Taxation on Pre and Post Tax Contributions in IRA

[Guest Twinky]

I met with a Financial Advisor the other day who posed a question to me regarding Pre and Post tax money in an IRA. Here's the scenario:

A person rolled ALL of his monies into an IRA. This money consists of 20% after-tax money, 50% pre-tax IRA money and 30% pre-tax money from a qualified plan. When this person takes his distribution, how is the tax calculated?

Your input is greatly appreciated!

Thanks!

[namealreadyinuse]

You need a new "financial advisor" . . .

If the post tax is traditional (not Roth), all that means is you get basis for your original contributions. The question is too easy if you assume a total distribution. You will take the total account balance, subtract the post tax contributions, and report the net as taxable distribution (also potentially subject to early distribution tax).

[jevd]

Form 8606 is used to determine the taxable & non-taxable portions of IRA distributions when After Tax ( non-deductible) contributions have been made.

See forms & Instructions site

HERE

and choose form 8606 & also instructions (listed separately)

also Publications

IRS Pubs

and choose Pub 590 for more information.

I agree with namealreadyinuse.

Find another advisor.

[John G]

This is a rudementary issue that all financial advisors should know. I concur with the others, start looking for another financial advisor? Is this some kind or rookie in a big house?

Perhaps some of our FAs and tax advisors can post info on how to find a good financial advisor. I rely heavily upon my network of friends when I need to find expertise in any area. I am wary of anyone that leads off with acronym credentials that rarely are correlated with substance or quality.

I've worked on the premise that I am the key person for basic facts (Google sure helps) and that my accountant should be an expert on the more arcane tax rules. I recognize that not everyone is comfortable relying on their own abilities, or has the time devote to the many elements of investing and taxes. It is extremely difficult to hire a financial advisor when your own personal knowledge is skimpy.

[Appleby]

See the article An Overview Of After-Tax Balance Rules

at http://www1.investopedia.com/articles/reti...ertaxassets.asp for some related information. I hope you find it helpful

[Guest Twinky]

Thank you all for your input!

The information Jevd and Appleby provided has been most helpful (something I can send along to the FA), thank you!

I deal with many different financial advisors...some really bright, others not. I do think we were all on the same page here though. He and I thought this was how it was calculated, but someone had told him otherwise, so he wanted clarification.

Thanks again!