Investing Insights Avoid This IRA Distribution Error to Protect Your Retirement Cash
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Feb 27, 2026 Denise Appleby, retirement and IRA specialist nicknamed The IRA Whisperer and Morningstar contributor, explains why IRA owners must track after-tax dollars themselves. She covers how withdrawals are allocated, why custodians often leave taxable amounts undetermined, and the importance of Form 1099-R and Form 8606. Practical steps for rebuilding records and avoiding double taxation are highlighted.
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How Mixed PreTax And AfterTax Dollars Affect Withdrawals
- Traditional IRAs can contain both pre-tax and after-tax (basis) dollars affecting how much of any withdrawal is taxable.
- Denise Appleby explains distributions are pro rata, so if 20% of IRAs are after-tax, 20% of a withdrawal is tax-free.
Custodians Often Can't Determine Taxable Portion
- IRA custodians often report full distributions as taxable and mark 'taxable amount not determined' because they can't aggregate your full IRA history.
- Your tax return treatment depends on your aggregate IRAs and historical non-deductible contributions.
Split 401(k) Rollovers And Convert AfterTax To Roth
- Ask your 401(k) plan administrator for a current statement and request a split distribution if you have after-tax money.
- Send pre-tax funds to a traditional IRA and roll after-tax dollars to a Roth to get tax-free Roth conversions.