Non-deductible IRA contribution

Submitted by Susan Comegys on Wed, 2016-03-16 19:46

If a deduction is claimed on my income tax return for IRA contributions, does that mean it will not be considered a non-deductible contribution and is not added to my basis?



Submitted by Alan - IRA critic on Wed, 2016-03-16 23:46

Correct. But you do not have to accept the deduction. You can declare it non deductible and file Form 8606 if you wish, but if you have already filed you will have to amend your return. What are you trying to accomplish here?

Submitted by Susan Comegys on Thu, 2016-03-17 17:45

To establish the basis for my IRA contributions.  When I am eligible for distributions at 59-1/2 years, the taxable and non-taxable portions may be issued pro-rata on the 1099s.  I have not filed the Form 8606 in prior years.   

Submitted by Alan - IRA critic on Thu, 2016-03-17 18:09

  • You would not file an 8606 for years you make deductible contributions. If you made prior non deductible contributions you did not report, you can retroactively file the 8606 for each year and the IRS has been accepting these without penalty. When you take distributions, the 1099R will always show the full amount as taxable because the custodian has no way of knowing your IRA basis. You then file another 8606 to report the distribution and the form will calculate your taxable amount and your remaining basis for future years. This is pretty simple if you use tax software, but you must be current on prior year 8606 forms.
  • It is generally better not to make non deductible contributions unless you are able to convert them tax free to a Roth IRA. And to do that your pre tax IRA amount must be rolled into an employer plan, otherwise your conversion will be taxable.
  • If your income is not too high, it is always better to make regular Roth contributions than to make non deductible TIRA contributions, as that will avoid the hassle in the previous bullet point.
  • Do you not qualify for regular Roth contributions?

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