How do I report a distribution from my IRA that has nondeductible and deductible contributions?

How do I handle a distribution from my IRA that has both nondeductible contributions and deductible contributions? I am 70½.

You have had to begin taking mandatory IRA distributions because you are 70½. This is the only the case with traditional IRAs, not Roth IRAs.

If you have made nondeductible, after-tax traditional IRA contributions (or if your account includes any after-tax rollover amounts), you will not have to pay taxes on the portion of your distribution that represents after-tax contributions provided you have filed IRS Form 8606 each year you made a nondeductible contribution. However, taxes would be due on any earnings on those contributions.

Let's say you have several IRA funds with a total of $4,000 in previously deducted contributions, $14,000 in contributions that you couldn't deduct, and $2,000 in earnings. So your IRAs are worth $20,000 total.

You decide to withdraw $2,000 from one fund. To figure out how much of that is taxable and how much is nontaxable, divide all contributions you didn't deduct ($14,000) by the total IRA account(s) ($20,000).

$14,000 ÷ $20,000 = .70 or 70%

This means that 70% of any withdrawals are nontaxable. So if you take out $2,000, then $1,400 (.70 × 2000) of that isn't taxed. You do owe taxes on the other $600.

When you finish all this, you now have $12,600 in nondeductible contributions ($14,000 minus the $1,400 you just took out). The next time you withdraw money from your IRA, you divide that $12,600 by whatever your IRA account is worth at the time to get the new percentage.