The tax basis in individual retirement accounts (IRAs) measures the amount of nondeductible contributions in your IRAs. Knowing the tax basis of your IRAs helps you figure out how much of your distribution you have to pay income taxes on when you take an early Roth IRA distribution, or a distribution from a traditional IRA containing nondeductible contributions. You cannot combine your basis across different IRA types. For example, the tax basis of your Roth IRA does not affect the tax basis of your traditional IRA.
1. Add the value of all nondeductible IRA contributions made to the same type of IRA. For example, if you want to calculate you tax basis across all your traditional IRA accounts and you have added $10,000 to one traditional IRA and $5,000 to another traditional IRA, you total nondeductible contributions equal $15,000.
2. Add the value of any nondeductible contributions you withdrew from the same type of IRA to find the total nondeductible contributions taken out, if any. In this example, if you took two distributions, one removing $1,000 of nondeductible contributions and the other removing $2,600 of nondeductible contributions, you removed $3,600 of nondeductible contributions.
3. Subtract the nondeductible contributions removed from the IRA from the nondeductible contributions made to the IRA to find your basis across the multiple IRAs of the same type. In this example, subtract $3,600 from $15,000 to find your basis in your traditional IRAs equals $11,400.
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