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Questioner: longin

Question: I bought IRAs with after-tax dollars. How do I report taxes and on what form. Do I declare only interest that I made on the IRA and pay tax on that?

Answer: Withdrawals from your traditional IRA that contains non-deductible contributions are treated differently for tax purposes than traditional IRAs without non-deductible contributions. When you take a qualified withdrawal, which is a withdrawal when you are 59 1/2 years old or older, only part of your withdrawal is taxable. To calculate how much is taxable, you need to calculate the percentage of your traditional IRA's value that comes from the non-deductible contributions. For example, if your IRA is worth $40,000 and you made $30,000 of non-deductible contributions, 75 percent of your withdrawals would be tax-free. However, you need to recalculate this percentage each time you take a withdrawal. You must file form 8606 with your taxes to document the tax-free percentage.

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