IRA 101: Traditional IRA Distributions

This video details how distributions from traditional IRAs are reported on the tax return, including computing the taxable amount of a distribution that has had non-deductible contributions in the past.
To view the first episode of IRA 101, click here: • IRA 101: Contributions
To learn more about what is reported on a 1099R, click here: • What is a 1099R?
More about penalties for early retirement account withdrawals, and how to avoid them, can be found by clicking here: • Early Retirement Distr...
Additional Resources:
IRS Publication 17: "Your Federal Income Tax": www.irs.gov/pu...
IRS Publication 590-B "Distributions from Individual Retirement Arrangements": www.irs.gov/pu...
IRS Form 1099R: "Distributions from Retirement Plans": www.irs.gov/pu...
IRS Form 5498: "Retirement Plan Contributions": www.irs.gov/pu...
IRS Form 8606: "Nondeductible IRAs": www.irs.gov/pu...
The Tax Geek on Twitter: @taxgeekusa
The Tax Geek on Reddit: www.reddit.com/r/askataxgeek
Intro and background music: “Bluesy Vibes” - Doug Maxwell - KZbin Audio Library
DISCLAIMER:
The information presented in this video is for informational and educational purposes only, and is not intended to render tax advice for specific situations. If you have questions about your specific tax situation, please consult the resources linked above or consult with a qualified tax professional in your community.
The information contained in this video is based on tax law and IRS regulations as of the date of publication, and may be subject to change.

[@hsiaochuang4617]

This is the best non deductible ira withdrawal video I saw so far. Thank you very much!

[@TheTaxGeek]

You're very welcome!

[@allan3368]

When calculating the market value of all IRA's, would that also include also 401(k)'s.? I have one 401(K) with a former employer and also one that I put into a traditional IRA when I left the company. I assume the one would be a part of the denominator in the determining the percentage. I'm trying to decide if making a non-deductible contribution is worth the extra recordkeeping because the basic percentage of total distribution would be less than one percent since most of the contributions were pre-tax.

[@TheTaxGeek]

When computing the market value of all IRAs for the purpose of calculating the taxable amount of an IRA with a basis, only IRAs are taken into account.

[@MayWong-ks7fl]

Very detailed and clearly explained. Thank you very much for the information. 👍👍👍 Can you make a video for Roth IRA Distribution?

[@TheTaxGeek]

I made this video exclusively on Roth IRAs, which you can watch by clicking here: kzbin.info/www/bejne/i2jKgnWjftplfqM This video goes into depth on both Roth IRA Contributions and Distributions.

[@MayWong-ks7fl]

@@TheTaxGeek Thanks, showing the forms is helpful 👍👍👍

[@tonchua6353]

Kudos! Very clear explanation.

[@timtoolman9940]

When you withdraw from an IRA when do you pay the faxes? You don't get a 1099-R until the end of the year. Do you pay when you file your tax return? My concern is I would have a large underpayment tax penalty. Should I send a tax estimate payment to state and fed right after the withdrawal?

[@TheTaxGeek]

When you withdraw money from your IRA you can elect to have taxes withheld from the distribution. If you don't you may have a balance due when you file your tax return. You can make an estimated payment of the taxes that might be due if you did not have taxes withheld. But unless it's a truly large balance due, the underpayment penalty is usually pretty small and usually not worth worrying about.

[@timtoolman9940]

@@TheTaxGeekFed will be about 25k. Guess I better pay it now. I just did the IRA to Roth transfer a couple weeks ago. Or maybe I just have to send it to the IRS and State before Dec 31 this Year.

[@sohrabgodrej1548]

for Step 1 at 4:54, why do you need to add the distribution to the fair market value of all IRAs? Isn't that double counting the distribution?

[@TheTaxGeek]

Because the fair market value of the IRAs is as of the end of the year, and doesn't include the distribution.

[@jimbrown4640]

Leave it to the government to make retirement as complicated as humanly possible.

[@billytheweasel]

Not simple but clearly presented. So, a Roth is a non-deductible IRA - not pre-tax. The various new terms are a bit foreign for me still. I have both Traditional and Roth. The old adage, "I can explain it to you but I can't understand it for you" - applies, in my case!

[@TheTaxGeek]

Thanks for your comment. One of the biggest challenges I face is trying to oversimplify the unsimplifiable. I also believe from the bottom of my heart that everyone has a right to understand how the amount of money they pay to the government is calculated. Feedback is essential to this mission to help me make better videos.

[@wetfish338]

Another excellent video!!

[@billballoo7881]

If I sold my house and downsized and had an extra 100K to invest, can I put some or all of that 100K into my IRA?

[@TheTaxGeek]

You can put up to the maximum allowed for your age group ($6,500 - $7,500 if you're 50 or older) into an IRA, as long as you have sufficient earned income (income from wages or self-employment).

[@billballoo7881]

@@TheTaxGeek Ok so without sufficient earned income I cannot put any money from the sale of my house into a retirement fund

[@areguapiri]

What about people with IRAs over 70 1/2 years old?

[@TheTaxGeek]

If you're asking about Required Minimum Distributions, I have a video all about them: kzbin.info/www/bejne/kJe4faKmm8SEjM0 Starting in 2023, the age for Required Minimum Distributions has been raised to 73, so people have a little more time before starting to take them.

[@missdagmara]

How do you calculate the 10k excluded for homebuyers on this form?

[@TheTaxGeek]

You enter the entire amount of the distribution on line 1 of form 5329 and the amount you wish to exclude from the penalty on line 2. Use exception code 8. Please keep in mind you must be a first-time homebuyer and you can only use distributions from IRAs (not employer plans such as a 401(k)) to claim the exemption. For more information, check out this video: kzbin.info/www/bejne/e5mVoHqipa50a7s

[@missdagmara]

@@TheTaxGeek Thank you SO much!

[@JhovanPaga]

Can you do Schedule 1 and Schedule C?

[@TheTaxGeek]

A video on Schedule C should be coming early next year, so watch out for it! Schedule 1 I usually cover in terms of what goes on it from other forms. I also have a whole playlist called "Business Tax Oversimplifications" that cover many aspects of business taxes.

[@ajt7125]

videos are good, music is bad. Why have music playing when viewers are trying to concentrate and understand what you're saying. Very annoying.

[@TheTaxGeek]

Sorry. The music is there to compensate for a less than ideal audio recording situation and cover up echos, rumbles, thumps, etc.. Once the channel eventually monetizes, one of my first investments will be in a proper professional microphone setup. In the meantime, I'll reduce the volume a bit or experiment sans music. Thanks for your feedback; it is appreciated.

[@ajt7125]

@@TheTaxGeek That'd be good, just lower it down for now until, as you said, you get a better sound system. Although I'd rather hear the imperfect sounds than music. Maybe try sending out a few videos without the music and let's hear how how bad (or maybe how good, maybe it will surprise you) it is.

[@TheTaxGeek]

Future Geek (Dec 2023) here...at the end of every year I watch all the videos to make sure updates are made in the description and pinned comments, and after watching the first 30 videos I can truly say I'm sick of the music! Starting just after this comment was posted, I eliminated the music except for the theme and outro music.

[@turn-n-burn1421]

I never find the answer to my own question. It's always other scenarios. Every time, either here or in search engines

[@TheTaxGeek]

Ask your question, and I'll see if I can answer it.

[@theyeye9652]

Gotta love pro rata rules

[@charlesreiff6518]

I need to find my refund paperwork from 2022

[@daver2964]

Robotic! You are just quoting what you read somewhere else. You want to enlighten folks, be real. People love to think they are helping others, but you paint broad strokes, with no really go examples that follow thru so that the concept or idea sticks. EX: What happens year 2-x of that $4500....Ex: what is 8606 and what happens if I don't file it. Ex: what if I don't file 8606 on time?

[@knowledgeizhell]

He's the best tax channel on KZbin in my humble opinion. Clear and concise explanations of otherwise very complex topics to the average lay person. If you watch his video on CONTRIBUTIONS (ideally viewed before this distribution video), you'd find a clear expose on Form 8606 as to how making NON-DEDUCTIBLE contributions to a TRADITIONAL IRA activates this form, notifying the IRS that BASIS is established, so that in the future, upon withdrawal, DOUBLE TAXATION is avoided! Interestingly, in the comment section of his CONTRIBUTIONS video, he deftly points out TWO disadvantages to making a NON-DEDUCTIBLE contribution to a TRADITIONAL IRA, in part or in whole, that being: 1.) The taxpayer can easily forget down the road that he had made a non-deductible contribution (resulting in double taxation). 2.) The basis must be prorated until the account is closed, which means extra work. Perhaps you should seek elsewhere for tax edification, as sources are ubiquitous. As for me, The Tax Geek is truly helping me succeed at my new job working for a CPA firm whose client base is strictly high-end. Robotic 🤔. Hardly🙄. Peace out.