Filed 8606 and then no contribution
I think I know the answer to this based on other 8606 topics discussed here, but thought I would confirm. The client filed their tax return with an 8606 stating they contributed a $5500 non-deductible amount. However, due to an error on their part with setting up the ACH transfer, it didn’t through and the Non-Deductible IRA contribution was not made before the April 18, 2017 deadline. Does the client simply need to send in a new 8606 form that now shows no 2016 non-deductible IRA contribution? No deduction was taken, so no tax issue involved here. Just that the filed form says they made a 2016 non-ded contribution when in fact they did not.
Thank you!
Permalink Submitted by David Mertz on Wed, 2017-04-19 17:06
Under the circumstances, it seems appropriate to file the corrected Form 8606 (explicitly zeroing out the previously reported nondeductible contribution) along with Form 1040X to substantiate that there is no change to the tax liability and to provide a place for the explanation for the correction to the Form 8606.
Permalink Submitted by Alan - IRA critic on Wed, 2017-04-19 17:06
In about two weeks, client should send in a stand alone 8606 for 2016 marked “Corrected” and show 0 wherever the filed 8606 reports a 2016 ND contribution. Or because this applies to such a recent year, a 1040X would eliminate the chance that the 8606 is rejected with a request for the 1040X as well.
Permalink Submitted by William Tuttle on Wed, 2017-04-19 18:17
Depending on the exact circumstances, the custodian could count this as a 2016 contribution. IRA custodians have some discretion to consider when the contribution is made. For example, many will accept a mailed check postmarked on or before the tax filing deadline. Even if the check is received after the deadline and clears even later. If a direct ACH transfer to the IRA failed and was reinitiated by 4/18/17, many custodians would consider that meeting the deadline even though the ACH was not credited until after the deadline. Of course, today would be too late.
Permalink Submitted by Arek Puzia on Wed, 2017-04-19 20:40
Thanks everyone! Didn’t think a 1040X would be necessary but maybe that will be the best approach. I will have the client try to work with the custodian first to get it credited for 2016.