IRA contribution

Submitted by Susan O'Malley on Fri, 2017-04-21 13:57

We have an Traditional IRA that we rolled over from a 401K. It has approximately $250,000 in it. We want to add some after tax money to it but don’t want to pay taxes on the new money we are adding since we already paid taxes on that money. How is this best handled? Are we able to differential this money in the account so that we don’t have to pay taxes on it again?



Submitted by Alan - IRA critic on Fri, 2017-04-21 16:26

  1. Form 8606 is used to report non deductible TIRA contributions on the tax return for the contribution year. If you take a distribution later on you also use Form 8606 to calculate the taxable amount. If you added 2500 in non deductible contributions, that is only 1% of your total value, so only 1% of your distribution would be non taxable.
  2. Note that if you qualify for a Roth IRA contribution, this is always preferable to a non deductible TIRA contribution.
  3. If you do not have an TIRA basis now (non deductible contributions), you might want to just invest in a taxable account or you will probably be stuck  with Form 8606 forever.

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