Pretax – Post tax IRA contributions
A current prospect indicates that he has made substanial post tax contributions to IRAs. He did not file a form 8606 and he has no record of the contributions.
He provided us with an estimate of annual contributions per IRA which indicate he over funded IRAs from 1974 to 1990.
We think the probability of an audit is greater if he begins to file the 8606 now. We also think he carries substanial audit risk if he begins to take distributions.
I am interested to find out how other professionals have adviced clients in similar circumstances.
Permalink Submitted by BruceM on Mon, 2008-07-14 20:07
Pretax (deductible) TIRA contributions do not require the filing of an 8606.
Assuming you mean after-tax contributions, to file the 8606 for past years, he’d need something that says he made an after tax contributions to his IRA, such a form 5498 for that year. I’m not sure if there’s a statute of limitation for back-fling 8606’s…..but there is a $50 penalty for failure to file, although some on this site have said the IRS is not pressing back-filers to collect this.
And keep in mind, all TIRA contributions prior to the 1986 TRA were deductible, as the TRA created AGI phaseouts for active participants.
BruceM
Permalink Submitted by Roger Kruse on Mon, 2008-07-14 20:15
Yes, I ment the post tax contributions. I am not familiar with the pre 1986 rule making all contributions pretax. I will look into this further.
My greater concern is that he is saying he contributed $2,000 to three different IRA account when the aggregate contribution was limited to $2,000.
Permalink Submitted by Alan Spross on Mon, 2008-07-14 22:28
Correcting the excess contribution situation is a totally different issue than the 8606 filing.
As Bruce indicated, the post tax contribution cannot have occurred prior to 1987, so no need to go back farther than that. Also, the IRS has not been charging the penalty for retroactively filed 8606 forms, as long as these are correct. However, if the client overrstates the basis, all bets are off. The IRS presumably has access to 5498 forms showing his actual contributions, and his returns showing any deductions, so the information filed can be verified. Obviously, if he contributed 6,000 in a year where he deducted 2,000, he has exceeded the contribution limit and cannot now report the extra 4,000 as after tax on an 8606.
In filing the 8606 forms, the correct year’s edition should be used if possible, and completed in chronological order because the basis is cumulative from one year’s form to the next. If he has taken distributions in the interim, those can be ignored as long as he did not claim any after tax amount in such distributions or conversions.
If he made excess contributions including a Roth contribution, the Roth is deemed the excess amount that needs to be corrected first.