When a traditional IRA contains nondeductible contributions, part of the account has already been taxed. That after-tax amount is called basis. Death does not erase it. IRS Publication 590-B states that if a person inherits a traditional IRA with basis, the basis remains with the IRA. A surviving spouse must preserve the records so future distributions are not taxed twice.

The recordkeeping becomes more complicated because a spouse can either remain a beneficiary or eventually treat the inherited IRA as an own IRA. While the account stays inherited, the decedent’s basis is generally tracked separately from the spouse’s personal traditional IRA basis. After qualifying owner treatment, the inherited IRA becomes part of the spouse’s own traditional IRA framework.

Find the decedent’s last Form 8606 before moving the account

Form 8606 reports nondeductible contributions to traditional IRAs and tracks basis after distributions and conversions. The decedent’s most recent Form 8606, together with earlier forms if the history is incomplete, is the best starting point. Brokerage statements alone may not show lifetime tax basis accurately.

Search the decedent’s tax files for Form 8606, Forms 1040, conversion records, and any statements showing after-tax rollover amounts. If a CPA prepared the returns, request the historical basis schedule. A custodian can process a rollover without knowing this tax history, so “the firm transferred everything successfully” does not prove basis was preserved in the taxpayer’s records.

Basis remains with an inherited traditional IRA

Publication 590-B is direct: inherited basis remains with the IRA. If the beneficiary is not the decedent’s spouse, that inherited basis cannot be combined with the beneficiary’s own traditional IRA basis. A spouse has a special exception when the spouse chooses to treat the inherited IRA as the spouse’s own.

Until that owner treatment occurs, the safer recordkeeping approach is to keep the decedent-specific basis with the inherited account. The 2025 Form 8606 instructions say a person may need a separate Form 8606 for an IRA inherited from each decedent. That separation prevents one deceased person’s basis from being blended prematurely with another inherited account or the spouse’s personal IRAs.

Distributions from the inherited IRA can use up basis

If the surviving spouse takes distributions while remaining a beneficiary, part of a distribution may be nontaxable because of the inherited basis. The pro-rata calculation applies under the traditional IRA rules. The spouse should file Form 8606 when required and reduce the remaining inherited basis by the nontaxable amount recovered.

Do not simply subtract the cash withdrawal from basis dollar for dollar. Traditional IRA distributions generally contain a proportional mix of taxable and nontaxable amounts based on the applicable IRA values and basis. Form 8606 performs that calculation. A CPA should handle unusual cases involving multiple inherited IRAs from the same decedent or year-end transfers.

Owner treatment changes where the basis is tracked

Publication 590-B says that unless the beneficiary is the decedent’s spouse and chooses to treat the IRA as own, inherited basis cannot be combined with the beneficiary’s other traditional IRA basis. The spouse exception means that after valid owner treatment, the remaining basis becomes part of the spouse’s own traditional IRA basis system.

This does not mean the basis vanishes into the account value. The spouse should carry the remaining amount into Form 8606 records. Future distributions or Roth conversions from the spouse’s traditional, SEP, and SIMPLE IRAs can be affected by the spouse’s aggregate basis and year-end values under the Form 8606 calculation.

A rollover itself generally does not make basis taxable

A properly completed tax-free rollover of eligible traditional IRA assets does not normally create income merely because part of the account has basis. The taxable and nontaxable character continues in the receiving IRA. Required minimum distributions cannot be rolled, so any required amount must be reported separately.

If the spouse converts traditional IRA money to a Roth IRA rather than completing a tax-free traditional-to-traditional rollover, the conversion has its own Form 8606 calculation. Existing basis can reduce the taxable portion, but the pro-rata rule generally prevents selecting only the after-tax dollars for conversion from the spouse’s aggregated traditional IRA pool.

Do not rely on Form 1099-R to tell you the entire basis story

A Form 1099-R reports distributions, but the payer may not know the taxpayer’s total traditional IRA basis. Box 2a or related indicators do not relieve the taxpayer of the Form 8606 calculation. The spouse’s tax return can therefore show a nontaxable portion different from what a casual reading of the custodian’s form suggests.

Keep the 1099-R together with the inherited basis worksheet and rollover confirmation. If an RMD and rollover occurred in the same year, identify which distribution was not eligible for rollover and how much basis was recovered through it before calculating the basis carried to the new own IRA.

Example: basis before and after spouse owner treatment

Assume the decedent’s traditional IRA is worth $300,000 and the final Form 8606 shows $30,000 of unrecovered basis. The surviving spouse keeps the account inherited for a period and takes a distribution. Form 8606 determines the nontaxable fraction and reduces the $30,000 basis accordingly. The exact calculation depends on the required values and other applicable inherited accounts.

Later, the spouse validly treats the remaining IRA as the spouse’s own. Whatever decedent basis remains is no longer kept as a separate beneficiary-only pool; it joins the spouse’s own traditional IRA basis framework. If the spouse already had $15,000 of personal basis, both amounts can matter in future Form 8606 calculations after the ownership change.

What if no Form 8606 can be found?

Missing paperwork does not prove basis was zero. Reconstruct the record from prior tax returns, nondeductible contribution records, conversion history, and available transcripts or preparer files. The IRS requires taxpayers to maintain records supporting basis until it is fully recovered.

Do not invent a basis estimate from the current account value. If the decedent made years of nondeductible contributions but failed to file Form 8606, a tax professional can determine whether late forms or other corrective reporting is appropriate. The goal is a supportable historical number, not a convenient percentage.

Basis in an inherited Roth IRA is a different concept

Roth IRAs have ordering and basis rules distinct from traditional IRAs. The Form 8606 instructions also address inherited Roth IRA distributions that are not qualified. Do not carry a traditional IRA basis worksheet into a Roth account simply because both use Form 8606.

Similarly, after-tax employee contributions inside a 401(k) are not automatically the same as nondeductible traditional IRA basis. If the spouse inherited an employer plan and then rolled amounts to an IRA, keep the plan’s after-tax source records and rollover documentation so the receiving IRA basis can be supported correctly.

A recordkeeping packet that should survive the rollover

Keep the decedent’s last several Forms 8606, the final traditional IRA year-end statements, records of distributions after death, the spouse’s separate inherited Form 8606 filings, the rollover or owner-election paperwork, the receiving account confirmation, and the spouse’s subsequent Forms 8606. Label the packet with the decedent’s name and date of death.

After the account becomes the spouse’s own, update the spouse’s basis worksheet to reflect the surviving amount. A tax preparer should be able to trace the number from the decedent’s final filing through inherited distributions into the spouse’s current Form 8606. If that audit trail breaks, double taxation becomes much more likely.

Basis does not receive a step-up to fair market value

Inherited securities outside retirement accounts can sometimes receive a basis adjustment at death, which causes confusion when families see an IRA statement. Traditional IRA basis is a tax-accounting concept tied to nondeductible contributions and other already-taxed amounts. It is not reset to the IRA’s market value merely because the owner died.

If the account grew from $100,000 of contributions to $400,000 at death, the spouse cannot declare $400,000 of IRA basis. The inherited basis remains the unrecovered after-tax amount supported by the decedent’s records. Keeping this distinction clear prevents an erroneous claim that all post-death distributions are tax-free because the account was “stepped up.”

Basis records should follow partial rollovers, not just full-account moves

If only part of an inherited IRA moves into the spouse’s own IRA, do not assign basis to the transferred dollars by intuition. The tax rules determine how basis is allocated through distributions and rollovers, and the remaining inherited account can still carry basis. A partial transaction therefore needs a contemporaneous Form 8606 worksheet.

Keep both ending account values and every distribution amount for the year. The following tax return should reconcile the basis that remains inherited with the amount now included in the spouse’s own IRA basis framework. This is one area where a mechanically correct custodian transfer can still produce incorrect tax reporting if the records are not coordinated.

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This is general information, not personalized tax or legal advice — a CPA or estate attorney can confirm how this applies to your specific inherited account.