An IRA basis is created by contributing to a traditional IRA in a year youcouldn't deduct it (because you and/or your spouse was covered by a planand 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 an8606 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 Then when amounts are withdrawn from your IRA, you get to re-cover your basis (the amount that was never taxed) tax free.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, yourbasis is 0, if all you did was roll over 401K money into an IRA. Sincethe advent of Roth IRA's, this is not as common, since if you can't deductit anyway why not put it into a ROTH so the growth will also be recoveredtax free. However if you earn too much you can't contribute to a Roth.Norm
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