IRA Contribution
Client in 2008 made a contribution to her IRA that was non-deductable due to her being covered by her employer’s retirement plan. Can she amend her 2008 Form 1040 and file Form 8606 to treat the 2008 contribution as a non-deductable contribution? The individual lives in New York. Are there any forms she has to file in New York, other than the amended return?
Permalink Submitted by Alan Spross on Wed, 2010-09-29 21:12
Yes, she can amend her 08 1040, but that is only necessary if she took an IRA deduction and will not owe taxes on it. This is also true for NYS. If she did not take the deduction, an 8606 could be filed on a stand alone basis for the purpose of recording the new basis in her IRA, and in that case there would be no required filing for NYS.
If she owes money for 08, the IRS and NY will probably bill her interest on the back taxes.
Permalink Submitted by Robert L. Wolff on Wed, 2010-10-06 19:48
The taxpayer did take a deduction for the contribution and now owes income taxes on the disallowed contribution. If she pays the tax and amends the return to treat the contribution as a non-deductable contribution, will she be subject to the 6 % excess contribution penality for 2008?
Permalink Submitted by Alan Spross on Thu, 2010-10-07 02:04
No, there is no 6% excise tax because the amount contributed is allowed, just not a deduction for it.
There is also another alternative to consider in the event she does not want to deal with Form 8606 and all the future pro rate calculations. She could amend the return to eliminate the deduction and instead of filing the 8606, she could ask for a distribution of the contribution (no earnings calculation). The distribution would not be taxable because the tax would be paid by eliminating the deduction on the amended return year. This would require an explanatory statement so the IRS would understand why the distribution is not being included in income . (Pub 590, p 50)