Basis (tax).
In plain English
Basis is the portion of an account that is made up of dollars that were already taxed. When you take money out, your basis comes back to you tax-free, and only the rest, the growth and any never-taxed contributions, is taxed. In a traditional IRA, deductible contributions and free money create no basis.
01Why it matters
Basis is why free money is not as free as it looks. In a Trump Account, the $1,000 seed and any employer money create no basis, so every dollar of them is taxable when withdrawn. Only the after-tax dollars a family adds themselves come out untaxed.
02The math, step by step
A Trump Account holds a $1,000 government seed and $4,000 the family put in with after-tax dollars. The $1,000 seed is not basis and is fully taxable on withdrawal. The $4,000 is basis and comes back tax-free; only its growth is taxed.
03What this is NOT
Basis is not the whole balance and it is not the growth. It is only the already-taxed money you put in. The balance minus your basis is what gets taxed on withdrawal.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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