How will my IRA withdrawal be taxed if investments lost value?

Thanks for explaining, but I'm still confused. If I bought the stocks with after-tax money, shouldn't I only be taxed on any gains? And since these actually lost value, shouldn't I be able to claim a loss? Also, I don't remember ever filing a Form 8606 when I made the contributions.

The key thing to understand is that IRAs are "tax-deferred accounts" where the original tax treatment depends on whether you took a deduction when contributing. If you contributed after-tax dollars without filing Form 8606, the IRS has no record that you paid tax on this money already. Without Form 8606 documentation, the IRS assumes all withdrawals are fully taxable. You can't claim investment losses inside an IRA - that's one of the trade-offs of the tax-advantaged account. You might want to look back at your records to see if those contributions were actually deducted on your taxes in previous years, in which case they were pre-tax, not after-tax as you thought.

How accurate is this tool? I've got a mess of IRA contributions over 15 years and some were deducted, some weren't. Does it actually show you where to find this info on old returns or just make guesses?

I'm intrigued but skeptical. How does it handle situations where you've rolled over 401ks into IRAs multiple times? My financial history is complicated and I'm worried about trusting an AI with something this important.

It's surprisingly accurate. The system scans your past returns line by line and identifies specifically where deductions were taken or not taken. It doesn't guess - it extracts the exact numbers from your documents. For complex situations with multiple rollovers, it creates a timeline of all your retirement account transactions based on your tax returns and 1099-Rs. It helped me track three different 401k rollovers and identified where my basis was getting lost in the process. The step-by-step breakdown made it really clear what was happening with my money.

Wait so this service just gets you to the front of the IRS phone queue? How does that even work? Sounds too good to be true.

This seems sketchy. Why would I pay for something I can do myself for free? The IRS eventually answers if you're patient enough. And what guarantee is there that they'll actually have the right answers to complex IRA basis questions?

It doesn't put you at the "front of the queue" - that would be cutting in line. What it does is make the calls for you and only connects you once a human agent answers. No more waiting on hold for hours. The value isn't just getting through faster - it's that you can actually speak with a live IRS agent who has access to your tax records. When I called about my IRA basis question, the agent was able to look up my filing history and confirm exactly which years I needed to file Form 8606 for. They walked me through the exact calculation I needed to determine my non-taxable portion. Much better than guessing or relying on possibly outdated online articles.

That might be exactly what happened! Part of the money in my rollover IRA came from an old 401k that had some after-tax contributions. The financial advisor who helped me with the rollover never mentioned anything about separating that money. Is there any way to fix this now?

Unfortunately, once the money has been commingled in a traditional IRA, you can't easily separate it. Your best option now is to properly track your basis by filing Form 8606 (if you haven't already). Your after-tax contributions become your "basis" in the IRA. When you take distributions in the future, a portion will be tax-free based on the ratio of your basis to the total value of all your IRAs. It's a pro-rata calculation, so you can't just withdraw the after-tax portion separately. This is one reason tax pros recommend keeping after-tax funds separate whenever possible.

TurboTax can handle this but you need to enter a Form 8606 first. Look under the Deductions & Credits section for "IRA Contributions" and there should be an option for non-deductible contributions. It will then calculate the taxable portion of your withdrawal correctly.

This is such a helpful breakdown! I think a lot of people (myself included) get confused because we think of IRAs like regular investment accounts where losses can offset gains. The "one big bucket" analogy really clarifies why the IRS treats all withdrawals the same way regardless of individual stock performance. Your point about double-checking whether those original contributions were actually deducted is crucial too. It's easy to forget taking IRA deductions years ago, especially if you were getting refunds. I'm going to dig through my old returns to see if I claimed deductions I forgot about before assuming everything was after-tax money.

This is really solid advice about requesting the IRA basis statement! I wish I had known about this earlier. I've been trying to piece together my contribution history from memory and scattered paperwork, but the custodian should have better records. One question though - if the rollover happened years ago and the after-tax portion wasn't properly coded or separated at the time, would the custodian's records still show it correctly? I'm worried that if my financial advisor didn't handle the rollover properly back then, the custodian might not have the right information either. Also, for anyone else reading this - definitely keep better records going forward! This whole situation has taught me to document everything related to retirement accounts, especially any after-tax contributions.

You raise a great point about custodian records potentially being incomplete if the rollover wasn't handled properly initially. Unfortunately, if the after-tax portion wasn't correctly identified during the original rollover process, the custodian's current records might not reflect the true basis. This is where those old 401k statements and pay stubs become really valuable - they can serve as independent documentation of your after-tax contributions even if the rollover paperwork was botched. The IRS generally accepts contemporaneous records like pay stubs showing after-tax 401k contributions as proof for establishing basis on amended returns. Your advice about keeping better records is spot on! I learned this lesson the hard way too. Now I photograph every retirement account statement and keep a simple spreadsheet tracking all contributions and their tax status. It's a small effort that can save thousands in taxes down the road. For anyone dealing with this situation, don't let a messy rollover from years ago discourage you from pursuing your rightful basis. The IRS has procedures for these situations, and with proper documentation, you can often recover the tax benefit of your after-tax contributions even years later.