Comingling pre/post-tax contributions in IRA

No.

That's correct.

What you may be thinking of is that you shouldn't comingle rollover and contributory IRAs, because the rollover IRA can be rolled into another employer plan later (although there are few reasons why one would want to do so -- the only one I can think of is so that you can then take a loan from the employer plan).

-- Barry Margolin, snipped-for-privacy@alum.mit.edu Arlington, MA

*** PLEASE don't copy me on replies, I'll read them in the group ***

Possibly, but as long as you maintain accurate records and file your 8606 form whenever you make a post-tax (nondeductible) contribution, it should not be a problem.

Correct

If you haven't read Pub 590 you may not be aware of a fundamental truth about IRA accounts: No matter how many individual accounts, brokers, etc that you use, the IRS considers ALL these subaccounts to be part of a SINGLE IRA account. Whether you physically separate your pre- and post-tax contributions is irrelevant, each withdrawal is effectively taxed as prorated amounts of each in all your subaccounts. This is true regardless of which account you tap for the withdrawal. As I stated above, form 8606 is the route that you use to track the taxability of such withdrawals.

See above.

Yes. See the instructions for form 8606.

-- Don EA in Upstate NY

after tax (nondeductible) contributions have to be reported (by you) on Form 8606 for the year they apply. Otherwise you pay tax twice on that money. When you take money out, you use Form 8606 to determine the amount that is taxable--you will be asked for the value of ALL your traditional IRA's at the end of the year to calculate the percentage that is taxable. A Roth IRA is different, with distributions considered in order of contributions, conversions, and earnings. Other than keeping things simple, I don't see a drawback from commingled funds.

No. See below.

The value of all IRAs are aggregated to determine the taxable amount. It doesn't matter which account you draw the money from. If you think about it, post-tax treatment in IRAs applies only to the contributions. The earnings are always tax-deferred, so even an IRA with only pre-tax contributions would have a mixture of taxable and tax-free distributions. But since the law requires you to aggregate all balances it doesn't matter.

The IRS knows because you need to tell them. Form 8606 is used to keep track of your basis in the IRA. You file this every year in which non-deductable contributions are made, and then each year in which you take distributions, because the ratio will change due to investment returns in the IRA. It was once advisable to keep roll-over and non-roll-over accounts separate, but that is no longer necessary.

There is no need to keep separate accounts, as the IRS makes you add up the total of all your IRAs and calculate a percentage non-taxable based on your non-deductible contributions over the years. The IRS bases the calculations on the Form 8606 that you filed each year you had a non-deductible contribution to an IRA.

Is that really true? I thought it's still valid: The reason you want to segregate rollover funds is so that you can roll them back into a 401k if you so desire.

I thought that if you rolled a 401K into an IRA, you had the option to roll that back into a different 401K plan from a different employer at some time in the future, but if the rollover IRA was commingled with money from a different source (other than the rollover 401K) then you lost that option. Did something change this?

--

-Ernie-

Unless you might have to file for bankruptcy.

In which case an uncorrupted IRA resulting only from a rollover from a qualified employer plan has unlimited protection, while other IRAs have $1 million protection in bankruptcy.

-- ArtKamlet at a o l dot c o m Columbus OH K2PZH

Yes, it's been changed and that is no longer the case.

*However*, because a 401(k) plan is blown if non-ded trad IRA contributions get rolled into it, many 401(k) custodians still won't accept rollovers from commingled IRAs, even though tax law permits it.

-- Rich Carreiro snipped-for-privacy@rlcarr.com