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I have had no IRA distributions since 1999 until 2007 when I had a distribution from the IRA Rollover account only.

How do I report this 2007 distribution. I have a 2007 Form 1099-R with the distribution details.

Do I use form 8606 and the remaining 1969 tax-paid basis to recalculate the taxable/nontaxable portions of the 2007distribution including the Rollover account amount?

Yes. Take a look at the instructions for Part I of the 8606. You lump all your traditional IRA accounts and treat them as one in the calculation, regardless of which account(s) you tapped. Basically, you will have an 8606 Part I calculation every year you take a distribution until all your traditional IRA accounts have been fully distributed.

Since the law never requires you to fully exhaust your IRA, make sure your IRA beneficiaries are aware of this. The post-tax "basis" will carry over to them.

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