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I have read through pub 590 and can't find an answer....

Background: I have a rollover IRA (from a 401k) at Vanguard that contains both taxable and non taxable components. I realize that when I eventually withdraw from this IRA, each dollar withdrawn must be prorated into taxable / non-taxable components. Then I file form 8606 each year to keep the IRS (and me) aware the IRA's ongoing tax basis.

I am now planning a rollover of a lump sum pension distribution and the question I am facing is
1) to roll it into the existing rollover IRA at Vanguard or
2) roll it into a new separate IRA somewhere else.
This rollover IRA would consist 100% of pretax money.

By not rolling the pension money into the existing Vanguard, I will maintain a higher percentage of after tax money in that specific IRA.
My thinking is that when retirement withdrawals begin there would be an advantage to pull from the mixed account at Vanguard where a prorated part of the withdrawal would be after tax dollars.

So my questions is - will this work? Or would the IRS treat both IRA's as one giant IRA for sake of basis reporting and prorating taxable / nontaxable withdrawal percentages?

Thanks, mike
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My thinking is that when retirement withdrawals begin there would be an advantage to pull from the mixed account at Vanguard where a prorated part of the withdrawal would be after tax dollars.

So my questions is - will this work?


I understand your thinking, but no, it won't work. When you take distributions everything is glommed together, regardless of what account you're drawing from. See the instructions for Part I of Form 8606.

Phil
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I understand your thinking, but no, it won't work. When you take distributions everything is glommed together, regardless of what account you're drawing from. See the instructions for Part I of Form 8606.

Phil


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CRAP! Thanks Phil for your answer. It looks like I will never be able to get last dollar of after tax money our of my IRA until all IRAs are completed exhausted (excluding roths). With this in mind, I will probably die with after tax money still locked away.

I had an option earlier this year when I rolled my 401K to take the after tax money as a check to me and just roll the pretax money into the rollover IRA. If had it to do over again, I would have taken that after tax money. Is there any avenue to recharacterize that rollover since it was done in 2005?
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It looks like I will never be able to get last dollar of after tax money our of my IRA until all IRAs are completed exhausted (excluding roths). With this in mind, I will probably die with after tax money still locked away.

Although I don't enjoy dwelling on such matters, your heirs will thank you if you take the time to make sure the information about your pre-tax traditional IRA contributions is readily available and they understand how it works. The taxable/nontaxable calculation continues as your beneficiaries take distributions.

I had an option earlier this year when I rolled my 401K to take the after tax money as a check to me and just roll the pretax money into the rollover IRA. If had it to do over again, I would have taken that after tax money. Is there any avenue to recharacterize that rollover since it was done in 2005?

The way your luck is running today, you'll not be surprised that the answer is "no."

Phil
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The way your luck is running today, you'll not be surprised that the answer is "no."

Phil


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Phil - Not the answer I hoped for but settles the matter. You da man.... thanks.... Mike
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