How to Calculate the Taxable Amount of an IRA Withdrawal

by Mark Kennan

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

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.

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.

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.

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

Total the contributions contributions made to your Roth IRA.

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.

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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