How to Calculate the Taxable Amount of an IRA Withdrawal

by Michael Keenan

In several circumstances, the taxable amount of your IRA withdrawal is easy to calculate. When you take a qualified Roth IRA distribution, the entire amount is tax-free. When you take a distribution from a traditional IRA in which you made only pre-tax contributions, the entire amount of each distribution is taxed as income. In two circumstances, you have to take several steps to calculate your taxable portion of an IRA distribution: when taking any distribution from a traditional IRA that includes nondeductible contributions, or when taking a nonqualified distribution from a Roth IRA. A nonqualified distribution from a Roth IRA occurs if you are under 59 1/2 years old or if your Roth IRA is under five tax years old.

Traditional IRAs

Step 1

Total the nondeductible contributions in your traditional IRA by adding the nondeductible contributions and subtracting any prior distributions of nondeductible contributions. For example, if you put in $55,000 in nondeductible contributions but have already taken out $20,000, you have $35,000 in nondeductible contributions remaining.

Step 2

Divide the nondeductible contributions remaining by the value of your account. In this example, if your traditional IRA's value equals $240,000, divide $35,000 by $240,000 to get 0.145833.

Step 3

Subtract the result from 1 to find the taxable portion of your traditional IRA distribution. In this example, subtract 0.145833 from 1 to get 0.854166.

Step 4

Multiply the taxable portion by the total traditional IRA distribution to find the taxable portion of the distribution. In this example, if you took out $5,000, multiply $5,000 by 0.854166 to find that $4,270.83 of your distribution is taxable.

Roth IRA Early Withdrawals

Step 1

Total the contributions contributions made to your Roth IRA.

Step 2

Subtract any prior distributions of contributions. For example, if you put in $55,000 in contributions but have already taken out $20,000, you have $35,000 in contributions remaining.

Step 3

Subtract the value your contributions in your account from the size of the distribution to find the taxable amount of the IRA distribution. If you get a negative number, none of your distribution is taxable. For this example, if you have $35,000 in contributions and you take a $40,000 distribution, $5,000 of your distribution is taxable.

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