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How is my IRA distribution taxed?

how is ira distribution taxed

Question from Jerry

February 15, 2012 at 8:58pm


I have had a Trad IRA since 1983. I received a full distribution this year for $54277.14. The total deferred funds put into the IRA is $33,475.06 (IRA Contributions - $6227, Div Reinvestments - $10,704.35, ST Reinvested - $538.57, and LT Reinvested - $3,425.23). It seems to me that $33,465.06 would be taxed at my personal income tax rate and $20,812.08 taxed as capital gains. Am I correct? What IRS form do I use. Are reinvested funds considered non-deductible contributions to the IRA? Thanks, Jerry

Answer: Jerry - Thank you for your question.

In a traditional IRA, the contributions you make are either deductible or non-deductible. Based on your comment, your contributions were all deductible and not included in your income for

tax purposes.

Now that you have taken a distribution of the entire account balance, the contributions you made over the years are taxable income to you in 2012.

The same is true of the earnings. There is no special tax treatment of earnings in a Traditional IRA. Just the same as the deducible contributions, the earnings are taxable income to you in 2012.

The entire account balance distributed to you will be included on your 2012 tax return and taxed as ordinary income.

Internal Revenue Service Publication 590, Individual Retirement Arrangements. explains the rules for Traditional and Roth IRA's. You can view, download, order or print this publication at the IRS web site, .

Need tax help? Send in your tax questions to Richard Panick, IRS media relations specialist.

Category: Taxes

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