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An IRA basis is created by contributing to a traditional IRA in a year you
couldn't deduct it (because you and/or your spouse was covered by a plan
and had too much income). The amount that couldn't be deducted (there
has been a phase out range) becomes your IRA basis and is entered onto an
8606 form. Then when amounts are withdrawn from your IRA, you get to re-
cover your basis (the amount that was never taxed) tax free. Unfortunately
it comes back tax free in proportion to your total IRA. In your case, your
basis is 0, if all you did was roll over 401K money into an IRA. Since
the advent of Roth IRA's, this is not as common, since if you can't deduct
it anyway why not put it into a ROTH so the growth will also be recovered
tax free. However if you earn too much you can't contribute to a Roth.
Norm
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