"I have an IRA that is after tax money. I was wondering how this is handled by the IRS? Do they know what I originally contributed or do they depend on me telling them?Thanks,JG "You should file tax form 8606, Nondeductible IRAs, each year you make an after tax contribution to an IRA. On this form you will calculate your basis each year. You must keep these forms "forever" because the IRS can ask to see them when you begin taking distributions. (They probably won't but they could.)When you begin taking distributions you will use form 8606 each year to calculate the portion of your distribution which is a return of your after tax contributions. That amount will be deducted when you report the IRA distribution on your 1040. You will also reduce you basis each year by the same amount until it is gone or so small you get tired of doing the math and just pay tax on the remaining after tax money.It would have been much simpler if IRS had just allowed us to use up all our after tax contributions in the first years of distribution but that wouldn't keep the accountants busy enough.Have fun!
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