Avoid Double Taxation on IRA Withdrawal
My spouse (66y.o) and I (70y.o.) had made our only after-tax contributions to our several 48-59 months TIRAs withing last 7 years, We are jointly filing with our modified AGI is less than $98.000, so we had taken a full deduction up to the amount of our contribution limit. We’ve never known about the Form 8606,and so we’ve never reported on IRS with it. This summer we withdrawn from our IRAs the whole amount of $90.000 to buy a property abroad. The bank officer said that IRA withdrawal was a subject to income tax. We are really disappointed, we did not intent to pay a double tax. My question is: can we provide IRS with the proofs that our contributions were made up of only after-tax funds, filing last-term Form 8606 for the all 7 missing years? Or, maybe there are any other legal ways to solve this problem?
Thanks a lot & Regards,
Viktor Kolesnikov
Permalink Submitted by Alan - IRA critic on Wed, 2016-09-07 18:58
If you each made non deductible TIRA contributions in the past that you did not report on Form 8606, you can file the respective edition of the 8606 retroactively. Each spouse has their own 8606 listing their SSN on it. Start with the first year you made non deductible contributions because the totals are cumulative. Check your prior tax returns to be sure you did not deduct part or all of a contribution and check your statements and/or Form 5498 to make sure that you actually made a contribution for a specific year. Get this done before the end of this year. You can then report your distribution and a portion would be non taxable. Note that in your post you stated that you took deductions, so not clear whether you made non deductible contributions or deducted some and not others. But you need to get your 8606 forms up to date if you indeed made non deductible contributions.