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My wife received an inherited IRA last year, so took an RMD (required minimum distribution) last year (still under the pre Secure Act rules, thought that doesn't really matter).

We got a 1099R for the distribution, it had a Gross Distibution and Taxable amount 1 and 2a with an amount, say $17,000,000. (JK). But then I notice now it also has Box 2b Checked - Taxable amount not determined. Looking at the investment account (at Schwab), I notice the inherited IRA reports a basis for all the investments still there.

So, was the RMD my wife took not all taxable? How do we figure/decide the basis for the distribution, and do we have to fill out some Form 8606 to report the taxable amount?

  • And looking more, the basis that Schwab is reporting is way too much - I think it may just be the value of the account when it transferred from the estate to my wife, not the sort of basis from nondeductible contributions I have in MY IRA. – Marvin Feb 2 at 2:09
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One possibility is the IRA contains non-deductible contributions. If non-deductible contributions were made (meaning, no deduction was taken on the contributor's taxes the year the contribution was made for those contributions), then those portions were taxed prior to being contributed, and so they are not taxed - only the income beyond those contributions is. These are reported as being the basis for the account.

It's very possible that the IRA is fully funded from deductible contributions; Schwab may never have known which portions were which (if any). Your best bet may be to find old copies of the tax forms from your wife's relative; those ought to list how the IRA contributions were made (particularly if they were deductible). This would definitely be something to employ a tax specialist or CPA to help figure out the exact details of, assuming the amount is sufficient to justify the expense anyway (as opposed to just paying tax on all of it).

You can use Form 8606 to work this out, and read the instructions carefully to help figure out how to calculate the correct amounts.

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  • So, this will be complicated to sort out. I suspect it is LIKELY that at least some portion of these were non-deductible contributions - I think her relative continued to fund the IRA after they were "comfortable". If there were non-deductible contributions to this IRA, there would need to have been Form 8606 for all the contributions. So presumably those are the forms we need to find. – Marvin Feb 2 at 23:42

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