How will taxes be calculated if I make a lump-sum withdrawal from an IRA that includes both taxable and nontaxable contributions?
If you have made both tax-deductible and nondeductible contributions to your Individual Retirement Account (IRA) and then decide to make a lump-sum withdrawal, some of the money you pull out will be taxed and the remainder will not. Here s an example, from “The Price Waterhouse Personal Tax Adviser” (Irwin Professional Publishing, Burr Ridge, Ill.): You have had an IRA for 10 years and now you want to make a lump-sum withdrawal. For the first eight years you made tax-deductible contributions of $2,000 each year. Your total deductible contributions: $16,000. During the last two years, you also contributed $2,000 annually, but those were nondeductible contributions. Your total nondeductible contributions: $4,000. The money you invested in the IRA generated $10,000 in profit. So altogether, you have $30,000 in the account. If you make a lump-sum withdrawal, you do not owe tax on the $4,000 in nondeductible contributions you made earlier. However, you do owe tax on the $16,000 in deductibl
