Retirement Planning/Traditional IRA


QUESTION: I previously wrote about document retention.  Now the more I think about my IRAs, the more questions I have.  I've looked at some old notes I had and realize that what I had written in an earlier question was inaccurate.  And I'm still unsure how "after tax" amounts are defined.  

I contributed to a traditional IRA for nine consecutive years (1982 through 1990.) Each year I contributed $2000 which I think was the maximum at the time.  I had noted that my contributions for the first five years were "deductible" and the following four years were "non-deductible."   I don't remember what changed between 1986 and 1987, but I think the rules changed so that my wages no longer qualified for the deductible option.
I'm assuming that for each of the first five years I didn't have to pay tax on the $2000, but I did have to pay tax for the following four years.  Maybe I thought that even though I couldn't deduct the income in those four years, it was still a good idea to make the contributions so the interest/dividends would be tax free in future years. Or wasn't that a good choice?

Does the term "after tax dollars" apply to my IRA?  How does "after tax" relate to deductible or non-deductible or is there no relation?  Account types that came later (Roth, 401k, etc) aren't at all familiar to me.  Maybe those types deal with the after tax feature?   Or is "after tax" just another name for non-deductible?

Over the years should I have kept all deductible contributions in accounts separate from the non-deductible contributions?  What happens after age 70.5 when I start to withdraw IRA money?  The tax I'll owe then will vary depending on if it was originally deductible or not?

I haven't yet searched for my old tax returns.  But I do remember filing Form 8606 Non-Deductible IRAs.  Originally it must have been required, but then I continued to attach it every year anyway just to keep a record of the value of my IRA each year.  And I listed $8000 as non-deductible each time.

I hadn't thought much about my IRA in decades.  Now that I think about it, it's confusing.

ANSWER: It looks like you are in great shape with your IRA.  You have non-deductible contributions and you have reported it properly with the 8606.  It will be up to you to pay the correct amount of income taxes on your eventual IRA distributions.  You will calculate it with a formula that mixes each dollar with a taxable and non taxable portion.  The income from a dollar of non-deductible contribution is taxed, but the dollar itself isn't.  The percentage of your total IRA balances that represents non-deductible contributions will be the portion that is not taxed.  

It may have been better to have contributed to a ROTH IRA with the non-deductible amounts if that was available to you.  I doubt you will regret it any event.  It was wise to make the contributions, especial if you have had a positive investment return.

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QUESTION: Although I've used 8606 forms for a long time, I've ignored most of the form and just filled in my non-deductible total and the yearly values of my IRA.   When I make IRA withdrawals, will I need to use 8606 in more detail?

A portion of the withdrawal won't be taxed because some of my contributions were non-deductible.  So would that portion be $8,000 divided by $18,000? (where $8,000 = non-deductible contributions, $10,000 = deductible contributions, $18,000 = total distributions.)

I've been assuming I won't withdraw IRA money until I'm 70.5.  But are there advantages to withdrawing it sooner?  (I'm now age 59.) Withdrawing smaller amounts each year for more years might be better than waiting and withdrawing larger amounts each year later?  Does the IRS care how much is withdrawn before age 70.5?

In the earlier days of my IRA I always used bank CDs.  Eventually I switched to a mutual fund.  I used to think I should avoid a mutual fund so I wouldn't have to track cost basis for years.  But IRA withdrawals don't use capital gains/losses?  Instead of using CDs, probably a mutual fund would have produced a larger balance and that would have been better? Too bad I can't go back in time 30 years and do it differently!

ANSWER: You're close on your calculation of what is taxable.  But, you take $8,000 and divide by the value of the IRA to come up with the portion of the tax.  This will be done on the same 8606 form.  

Sorry that you worried about having to track the cost basis of mutual funds.  This was not necessary. It is unlikely that you will need to worry about spreading the income over a number of years.  That is a bigger worry for someone trying to stay out of the 39.6% bracket, being phased out of all of their itemized deductions, and have a significant amount in their IRA.  

Just by guessing with your situation, I think you could maybe save 2% in tax over the life of your IRA if an early withdrawal strategy is done.  Even this may be negated by the amount of gain you are forgoing from the IRA funds now missing.  Sometimes it is convenient to not be part of the super rich crowd.  I don't see any advantage of taking more distributions than you need from your IRA sooner than you have to.  The only exception would be if you had a situation where some could be distributed without an increase in your tax liability at all, or you are just shy of the 28% bracket each year and you get a little out at 15%.

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QUESTION: I think I'll end up waiting until age 70.5 to withdraw IRA money!  

The government has such odd rules, like using age 70.5 instead of 70.  And their doughnut hole for Medicare Part D only seems to complicate things!  And what you say about calculating the non-taxable portion of an IRA withdrawal also seems odd, but they must have a reason for it.  It seems they should just say that the first $8,000 withdrawn isn't taxable, but I guess they don't want to wait to get their tax later.  

Now my IRA is worth about $90,000.  $8,000 (non-deductible portion) is only about 9% of that.  As withdrawals will occur over a number of years, $8,000 will be an increasing percentage of the balance.  Ex: if the balance goes down to $30,000, then $8,000 is about 26% of the balance.

My first IRA question was about what documents I need to retain.  You said I need to retain documents related to cost basis.  Do I need to save tax return documents and/or statements from banks and mutual funds?  I have to dig them out, but I think I have copies of every tax return back to the 1970s.  I also have old bank and mutual fund statements.  And I had made lists showing where each IRA contribution was invested over the years (ex: bank CD, then when that matured, the next CD, and the next, etc and eventually to a mutual fund.)

Thank you very much!

You will be fine if you just keep your tax returns.  Also, your after-tax portion is better than 9% in your IRA.  Your after-tax contributions compared to your taxable contributions dictates the percentage of the overall IRA balance that is after-tax.

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Joe DiDomenico


I can answer any questions related to Individual Retirement Accounts (IRA). This includes what can and can't be done with an IRA because of IRS regulations. I can also answer questions about the different types of retirement accounts and how they apply to different people in different situations. I can help direct people on what steps to take next with their retirement accounts.


I was a Financial Consultant at Merrill Lynch for 7 years and a Senior Vice President at CitiGroup for 3 years.


I wrote a book entitle, "Blame It On the Broker", currently for sale on Amazon.

Bachelor's in Financial Services from San Diego State University

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