taxmap/pubs/p590012.htm#en_us_publink1000230799In general, distributions from a traditional IRA are taxable in the year you receive them.
taxmap/pubs/p590012.htm#en_us_publink1000230800Distributions from a traditional IRA are taxable in the year you receive them even if they are made without your consent by a state agency as receiver of an insolvent savings institution. This means you must include such distributions in your gross income unless you roll them over. For an exception to the 1year waiting period rule for rollovers of certain distributions from failed financial institutions, see
Exception under
Rollover From One IRA Into Another, earlier.
taxmap/pubs/p590012.htm#en_us_publink1000230802Exceptions to distributions from traditional IRAs being taxable in the year you receive them are:
 Rollovers,
 Qualified charitable distributions, discussed below,
 Taxfree withdrawals of contributions, discussed earlier, and
 The return of nondeductible contributions, discussed later under Distributions Fully or Partly Taxable.
 Although a conversion of a traditional IRA is considered a rollover for Roth IRA purposes, it is not an exception to the rule that distributions from a traditional IRA are taxable in the year you receive them. Conversion distributions are includible in your gross income subject to this rule and the special rules for conversions explained earlier and in chapter 2. 
taxmap/pubs/p590012.htm#en_us_publink1000230805A qualified charitable distribution (QCD) is a nontaxable distribution made directly by the trustee of your IRA (other than a SEP or SIMPLE IRA) to an organization eligible to receive taxdeductible contributions. You must have been at least age 701/2 when the distribution was made. Also, you must have the same type of acknowledgement of your contribution that you would need to claim a deduction for a charitable contribution. See Records To Keep in Publication 526, Charitable Contributions. Your total QCDs for the year cannot be more than $100,000. If you file a joint return, your spouse can also have a QCD of up to $100,000. However, the amount of the QCD is limited to the amount of the distribution that would otherwise be included in income. If your IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income.
 A qualified charitable distribution will count towards your minimum required distribution. 
 Qualified charitable distributions are scheduled to expire and will not be available for 2010. 
taxmap/pubs/p590012.htm#en_us_publink1000230808 On November 1, 2009, Jeff, age 75, directed the trustee of his IRA to make a distribution of $25,000 directly to a qualified 501(c)(3) organization (a charitable organization eligible to receive taxdeductible contributions). The total value of Jeff's IRA is $30,000 and consists of $20,000 of deductible contributions and earnings and $10,000 of nondeductible contributions (basis). Since Jeff is at least age 701/2 and the distribution is made directly by the trustee to a qualified organization, the part of the distribution that would otherwise be includible in Jeff's income ($20,000) is a qualified charitable distribution (QCD). In this case, Jeff has made a QCD of $20,000 (his deductible contributions and earnings). Because Jeff made a distribution of nondeductible contributions from his IRA, he must file Form 8606, Nondeductible IRAs, with his return. Jeff includes the total distribution ($25,000) on line 15a of Form 1040. He completes Form 8606 to determine the amount to enter on line 15b of Form 1040 and the remaining basis in his IRA. Jeff enters 0 on line 15b. He also enters "QCD" next to line 15b to indicate a qualified charitable distribution. After the distribution, his basis in his IRA is $5,000. If Jeff itemizes his deductions and files Schedule A with Form 1040, the $5,000 portion of the distribution attributable to the nondeductible contributions can be deducted as a charitable contribution, subject to AGI limits. He cannot take a charitable contribution deduction for the $20,000 portion of the distribution that was not included in his income.
 You cannot claim a charitable contribution deduction for any QCD not included in your income. 
taxmap/pubs/p590012.htm#en_us_publink1000230810Distributions from traditional IRAs that you include in income are taxed as ordinary income.
taxmap/pubs/p590012.htm#en_us_publink1000230811In figuring your tax, you cannot use the 10year tax option or capital gain treatment that applies to lumpsum distributions from qualified employer plans.
taxmap/pubs/p590012.htm#en_us_publink1000230812Distributions from your traditional IRA may be fully or partly taxable, depending on whether your IRA includes any nondeductible contributions.
taxmap/pubs/p590012.htm#en_us_publink1000230813If only deductible contributions were made to your traditional IRA (or IRAs, if you have more than one), you have no basis in your IRA. Because you have no basis in your IRA, any distributions are fully taxable when received. See
Reporting and Withholding Requirements for Taxable Amounts, later.
taxmap/pubs/p590012.htm#en_us_publink1000230815If you made nondeductible contributions or rolled over any aftertax amounts to any of your traditional IRAs, you have a cost basis (investment in the contract) equal to the amount of those contributions. These nondeductible contributions are not taxed when they are distributed to you. They are a return of your investment in your IRA.
Only the part of the distribution that represents nondeductible contributions and rolled over aftertax amounts (your cost basis) is tax free. If nondeductible contributions have been made or aftertax amounts have been rolled over to your IRA, distributions consist partly of nondeductible contributions (basis) and partly of deductible contributions, earnings, and gains (if there are any). Until all of your basis has been distributed, each distribution is partly nontaxable and partly taxable.
taxmap/pubs/p590012.htm#en_us_publink1000230816You must complete Form 8606, and attach it to your return, if you receive a distribution from a traditional IRA and have ever made nondeductible contributions or rolled over aftertax amounts to any of your traditional IRAs. Using the form, you will figure the nontaxable distributions for 2009, and your total IRA basis for 2009 and earlier years. See the illustrated Forms 8606 in this chapter.
Note.If you are required to file Form 8606, but you are not required to file an income tax return, you still must file Form 8606. Complete Form 8606, sign it, and send it to the IRS at the time and place you would otherwise file an income tax return.
taxmap/pubs/p590012.htm#en_us_publink1000230818If your traditional IRA includes nondeductible contributions and you received a distribution from it in 2009, you must use Form 8606 to figure how much of your 2009 IRA distribution is tax free.
taxmap/pubs/p590012.htm#en_us_publink1000230819If you received a distribution in 2009 from a traditional IRA and you also made contributions to a traditional IRA for 2009 that may not be fully deductible because of the income limits, you can use Worksheet 15 to figure how much of your 2009 IRA distribution is tax free and how much is taxable. Then you can figure the amount of nondeductible contributions to report on Form 8606. Follow the instructions under Reporting your nontaxable distribution on Form 8606, next, to figure your remaining basis after the distribution.
taxmap/pubs/p590012.htm#en_us_publink1000230820To report your nontaxable distribution and to figure the remaining basis in your traditional IRA after distributions, you must complete Worksheet 15 before completing Form 8606. Then follow these steps to complete Form 8606.
 Use Worksheet 12 or the IRA Deduction Worksheet in the Form 1040, 1040A, or 1040NR instructions to figure your deductible contributions to traditional IRAs to report on Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 31.
 After you complete Worksheet 12 or the IRA deduction worksheet in the form instructions, enter your nondeductible contributions to traditional IRAs on line 1 of Form 8606.
 Complete lines 2 through 5 of Form 8606.
 If line 5 of Form 8606 is less than line 8 of Worksheet 15, complete lines 6 through 15 of Form 8606 and stop here.
 If line 5 of Form 8606 is equal to or greater than line 8 of Worksheet 15, follow instructions 6 and 7, next. Do not complete lines 6 through 12 of Form 8606.
 Enter the amount from line 8 of Worksheet 15 on lines 13 and 17 of Form 8606.
 Complete line 14 of Form 8606.
 Enter the amount from line 9 of Worksheet 15 (or, if you entered an amount on line 11, the amount from that line) on line 15a of Form 8606.
taxmap/pubs/p590012.htm#en_us_publink1000230821Rose Green has made the following contributions to her traditional IRAs.
Year  Deductible  Nondeductible 
2002  2,000  0 
2003  2,000  0 
2004  2,000  0 
2005  1,000  0 
2006  1,000  0 
2007  1,000  0 
2008  700  300 
Totals  $9,700  $300 
Rose needs to complete Worksheet 15, Figuring the Taxable Part of Your IRA Distribution, to determine if her IRA deduction for 2009 will be reduced or eliminated. In 2009, she makes a $2,000 contribution that may be partly nondeductible. She also receives a distribution of $5,000 for conversion to a Roth IRA. She completed the conversion before December 31, 2009, and did not recharacterize any contributions. At the end of 2009, the fair market values of her accounts, including earnings, total $20,000. She did not receive any taxfree distributions in earlier years. The amount she includes in income for 2009 is figured on
Worksheet 15. Figuring the Taxable Part of Your IRA Distribution—Illustrated.
The
Form 8606 for Rose, Illustrated, shows the information required when you need to use Worksheet 15 to figure your nontaxable distribution. Assume that the $500 entered on Form 8606, line 1, is the amount Rose figured using instructions 1 and 2 given earlier under
Reporting your nontaxable distribution on Form 8606. taxmap/pubs/p590012.htm#en_us_publink1000230823If you have a loss on your traditional IRA investment, you can recognize (include) the loss on your income tax return, but only when all the amounts in all your traditional IRA accounts have been distributed to you and the total distributions are less than your unrecovered basis, if any.
Your basis is the total amount of the nondeductible contributions in your traditional IRAs.
You claim the loss as a miscellaneous itemized deduction, subject to the 2%ofadjustedgrossincome limit that applies to certain miscellaneous itemized deductions on Schedule A, Form 1040. Any such losses are added back to taxable income for purposes of calculating the alternative minimum tax.
taxmap/pubs/p590012.htm#en_us_publink1000230824Bill King has made nondeductible contributions to a traditional IRA totaling $2,000, giving him a basis at the end of 2008 of $2,000. By the end of 2009, his IRA earns $400 in interest income. In that year, Bill receives a distribution of $600 ($500 basis + $100 interest), reducing the value of his IRA to $1,800 ($2,000 + $400 − $600) at year's end. Bill figures the taxable part of the distribution and his remaining basis on
Form 8606 (illustrated).
In 2010, Bill's IRA has a loss of $500. At the end of that year, Bill's IRA balance is $1,300 ($1,800 − $500). Bill's remaining basis in his IRA is $1,500 ($2,000 − $500). Bill receives the $1,300 balance remaining in the IRA. He can claim a loss for 2010 of $200 (the $1,500 basis minus the $1,300 distribution of the IRA balance).
taxmap/pubs/p590012.htm#en_us_publink1000230825Two other special IRA distribution situations are discussed below.
taxmap/pubs/p590012.htm#en_us_publink1000230826You can tell the trustee or custodian of your traditional IRA account to use the amount in the account to buy an annuity contract for you. You are not taxed when you receive the annuity contract (unless the annuity contract is being converted to an annuity held by a Roth IRA). You are taxed when you start receiving payments under that annuity contract.
taxmap/pubs/p590012.htm#en_us_publink1000230827If only deductible contributions were made to your traditional IRA since it was set up (this includes all your traditional IRAs, if you have more than one), the annuity payments are fully taxable.
If any of your traditional IRAs include both deductible and nondeductible contributions, the annuity payments are taxed as explained earlier under
Distributions Fully or Partly Taxable.
taxmap/pubs/p590012.htm#en_us_publink1000230829When you cash in retirement bonds, you are taxed on the entire amount you receive. Unless you have already cashed them in, you will be taxed on the entire value of your bonds in the year in which you reach age 701/2. The value of the bonds is the amount you would have received if you had cashed them in at the end of that year. When you later cash in the bonds, you will not be taxed again.
taxmap/pubs/p590012.htm#en_us_publink1000230830If you receive a distribution from your traditional IRA, you will receive Form 1099R, or a similar statement. IRA distributions are shown in boxes 1 and 2a of Form 1099R. A number or letter code in box 7 tells you what type of distribution you received from your IRA.
taxmap/pubs/p590012.htm#en_us_publink1000230831Some of the number codes are explained below. All of the codes are explained in the instructions for recipients on Form 1099R.
 1—Early distribution, no known exception.
 2—Early distribution, exception applies.
 3—Disability.
 4—Death.
 5—Prohibited transaction.
 7—Normal distribution.
 8—Excess contributions plus earnings/
excess deferrals (and/or earnings)
taxable in 2009.
taxmap/pubs/p590012.htm#en_us_publink1000230836Some of the letter codes are explained below. All of the codes are explained in the instructions for recipients on Form 1099R.
 B—Designated Roth account distribution.
 D—Excess contributions plus earnings/
excess deferrals taxable in 2007.  G—Direct rollover of a distribution (other than a designated Roth account distribution) to a qualified plan, a section 403(b) plan, a governmental section 457(b) plan or an IRA.
 H—Direct rollover of a designated Roth account distribution to a Roth IRA.
 J—Early distribution from a Roth IRA.
 N—Recharacterized IRA contribution made for 2009
and recharacterized in 2009.  P—Excess contributions plus earnings/
excess deferrals taxable in 2008.  Q—Qualified distribution from a Roth IRA.
 R—Recharacterized IRA contribution made for 2008
and recharacterized in 2009.  S—Early distribution from a SIMPLE IRA in the first
2 years, no known exception.  T—Roth IRA distribution, exception applies.
If the distribution shown on Form 1099R is from your IRA, SEP IRA, or SIMPLE IRA, the small box in box 7 (labeled
IRA/SEP/SIMPLE) should be marked with an "X."
 If code D, J, P, or S appears on your Form 1099R, you are probably subject to a penalty or additional tax. If code D appears, see Excess Contributions, later. If code J appears, see Early Distributions, later. If code P appears, see Excess Contributions, later. If code S appears, see Additional Tax on Early Distributions in chapter 3. 
taxmap/pubs/p590012.htm#en_us_publink1000230842Federal income tax is withheld from distributions from traditional IRAs unless you choose not to have tax withheld.
The amount of tax withheld from an annuity or a similar periodic payment is based on your marital status and the number of withholding allowances you claim on your withholding certificate (Form W4P). If you have not filed a certificate, tax will be withheld as if you are a married individual claiming three withholding allowances.
Generally, tax will be withheld at a 10% rate on nonperiodic distributions.
taxmap/pubs/p590012.htm#en_us_publink1000230843In general, if you are a U.S. citizen or resident alien and your home address is outside the United States or its possessions, you cannot choose exemption from withholding on distributions from your traditional IRA.
To choose exemption from withholding, you must certify to the payer under penalties of perjury that you are not a U.S. citizen, a resident alien of the United States, or a taxavoidance expatriate.
Even if this election is made, the payer must withhold tax at the rates prescribed for nonresident aliens.
taxmap/pubs/p590012.htm#en_us_publink1000230844For more information on withholding on pensions and annuities, see Pensions and Annuities in chapter 1 of Publication 505, Tax Withholding and Estimated Tax. For more information on withholding on nonresident aliens and foreign entities, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities.
taxmap/pubs/p590012.htm#en_us_publink1000230845Report fully taxable distributions, including early distributions, on Form 1040, line 15b (no entry is required on line 15a); Form 1040A, line 11b (no entry is required on line 11a); or Form 1040NR, line 16b (no entry is required on line 16a). If only part of the distribution is taxable, enter the total amount on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a, and enter the taxable part on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b. You cannot report distributions on Form 1040EZ or Form 1040NREZ.
taxmap/pubs/p590012.htm#en_us_publink1000230846Generally, the value of an annuity or other payment receivable by any beneficiary of a decedent's traditional IRA that represents the part of the purchase price contributed by the decedent (or by his or her former employer(s)), must be included in the decedent's gross estate. For more information, see the instructions for Schedule I, Form 706, United States Estate (and GenerationSkipping Transfer) Tax Return.
taxmap/pubs/p590012.htm#en_us_publink1000230847taxmap/pubs/p590012.htm#TXMP1582268a
Form 8606  Rose Green taxmap/pubs/p590012.htm#en_us_publink1000230848taxmap/pubs/p590012.htm#TXMP62851620
Form 8606  Page 2  Rose Green taxmap/pubs/p590012.htm#en_us_publink1000230849  Worksheet 15. Figuring the Taxable Part of Your IRA Distribution Use only if you made contributions to a traditional IRA for 2009 and have to figure the taxable part of your 2009 distributions to determine your modified AGI. See Limit if Covered by Employer Plan . Form 8606 and the related instructions will be needed when using this worksheet. Note. When used in this worksheet, the term outstanding rollover refers to an amount distributed from a traditional IRA as part of a rollover that, as of December 31, 2009, had not yet been reinvested in another traditional IRA, but was still eligible to be rolled over tax free. 1.  Enter the basis in your traditional IRAs as of December 31, 2008  1.   2.  Enter the total of all contributions made to your traditional IRAs during 2009 and all contributions made during 2010 that were for 2009, whether or not deductible . Do not include rollover contributions properly rolled over into IRAs. Also, do not include certain returned contributions described in the instructions for line 7, Part I, of Form 8606.  2.   3.  Add lines 1 and 2  3.   4.  Enter the value of all your traditional IRAs as of December 31, 2009 (include any outstanding rollovers from traditional IRAs to other traditional IRAs). Subtract any repayments of qualified disaster recovery assistance or recovery assistance distributions  4.   5.  Enter the total distributions from traditional IRAs (including amounts converted to Roth IRAs that will be shown on line 16 of Form 8606) received in 2009. (Do not include outstanding rollovers included on line 4 or any rollovers between traditional IRAs completed by December 31, 2009. Also, do not include certain returned contributions described in the instructions for line 7, Part I, of Form 8606.) Include any repayments of qualified disaster recovery assistance or recovery assistance distributions  5.   6.  Add lines 4 and 5  6.   7.  Divide line 3 by line 6. Enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000  7.   8.  Nontaxable portion of the distribution. Multiply line 5 by line 7. Enter the result here and on lines 13 and 17 of Form 8606  8.   9.  Taxable portion of the distribution (before adjustment for conversions). Subtract line 8 from line 5. Enter the result here and if there are no amounts converted to Roth IRAs, stop here and enter the result on line 15a of Form 8606  9.   10.  Enter the amount included on line 9 that is allocable to amounts converted to Roth IRAs by December 31, 2009. (See Note at the end of this worksheet.) Enter here and on line 18 of Form 8606  10.   11.  Taxable portion of the distribution (after adjustments for conversions). Subtract line 10 from line 9. Enter the result here and on line 15a of Form 8606  11.   Note. If the amount on line 5 of this worksheet includes an amount converted to a Roth IRA by December 31, 2009, you must determine the percentage of the distribution allocable to the conversion. To figure the percentage, divide the amount converted (from line 16 of Form 8606) by the total distributions shown on line 5. To figure the amounts to include on line 10 of this worksheet and on line 18, Part II of Form 8606, multiply line 9 of the worksheet by the percentage you figured. 

taxmap/pubs/p590012.htm#en_us_publink1000230851 Worksheet 15. Figuring the Taxable Part of Your IRA Distribution—Illustrated Use only if you made contributions to a traditional IRA for 2009 and have to figure the taxable part of your 2009 distributions to determine your modified AGI. See Limit if Covered by Employer Plan . Form 8606 and the related instructions will be needed when using this worksheet. Note. When used in this worksheet, the term outstanding rollover refers to an amount distributed from a traditional IRA as part of a rollover that, as of December 31, 2009, had not yet been reinvested in another traditional IRA, but was still eligible to be rolled over tax free. 1.  Enter the basis in your traditional IRAs as of December 31, 2008  1.  300  2.  Enter the total of all contributions made to your traditional IRAs during 2009 and all contributions made during 2010 that were for 2009, whether or not deductible . Do not include rollover contributions properly rolled over into IRAs. Also, do not include certain returned contributions described in the instructions for line 7, Part I, of Form 8606.  2.  2,000  3.  Add lines 1 and 2  3.  2,300  4.  Enter the value of all your traditional IRAs as of December 31, 2009 (include any outstanding rollovers from traditional IRAs to other traditional IRAs). Subtract any repayments of qualified disaster recovery assistance or recovery assistance distributions  4.  20,000  5.  Enter the total distributions from traditional IRAs (including amounts converted to Roth IRAs that will be shown on line 16 of Form 8606) received in 2009. (Do not include outstanding rollovers included on line 4 or any rollovers between traditional IRAs completed by December 31, 2009. Also, do not include certain returned contributions described in the instructions for line 7, Part I, of Form 8606.) Include any repayments of qualified disaster recovery assistance or recovery assistance distributions  5.  5,000  6.  Add lines 4 and 5  6.  25,000  7.  Divide line 3 by line 6. Enter the result as a decimal (rounded to at least three places). If the result is 1.000 or more, enter 1.000  7.  .092  8.  Nontaxable portion of the distribution. Multiply line 5 by line 7. Enter the result here and on lines 13 and 17 of Form 8606  8.  460  9.  Taxable portion of the distribution (before adjustment for conversions). Subtract line 8 from line 5. Enter the result here and if there are no amounts converted to Roth IRAs, stop here and enter the result on line 15a of Form 8606  9.  4,540  10.  Enter the amount included on line 9 that is allocable to amounts converted to Roth IRAs by December 31, 2009. (See Note at the end of this worksheet.) Enter here and on line 18 of Form 8606  10.  4,540  11.  Taxable portion of the distribution (after adjustments for conversions). Subtract line 10 from line 9. Enter the result here and on line 15a of Form 8606  11.  0  Note. If the amount on line 5 of this worksheet includes an amount converted to a Roth IRA by December 31, 2009, you must determine the percentage of the distribution allocable to the conversion. To figure the percentage, divide the amount converted (from line 16 of Form 8606) by the total distributions shown on line 5. To figure the amounts to include on line 10 of this worksheet and on line 18, Part II of Form 8606, multiply line 9 of the worksheet by the percentage you figured. 
