Discussion Forum Topic: Form 8606

Friday, August 14, 2009

By Jeffery Levine, IRA Technical Expert
Follow Me on Twitter: @IRAGuru4EdSlott

This week, the Ed Slott IRA Discussion Forum featured multiple questions about IRS form 8606. But what is this form and why is it so important? Read on to find out the Who, What, When, Where, Why and How of form 8606.

Who needs to file?

Any taxpayer that makes a non-deductible IRA contribution should make sure they file form 8606. The form must also be filled out by taxpayers who converted traditional IRA, SEP IRA, or SIMPLE IRA funds to a Roth IRA. Taxpayers who received distributions from a Roth IRA or another IRA account already containing non-deductible contributions must also file. Other circumstances may require the filing of form 8606 as well. Make sure to consult your tax advisor.

What does it do?

Form 8606 keeps track of taxpayers’ non-deductible IRA contributions. The form is cumulative, so if you made $3,000 of non-deductible contributions in 2007 and $4,000 of non-deductible in 2008, the 8606 submitted with your 2008 return should show $7,000 of total non-deductible contributions.

When should I file?

Form 8606 should be filed each year when you file your return as long as there are non-deductible contributions inside your IRA. So even if you contributed nothing to an IRA this year, if you have non-deductible contributions from past years, it’s a good idea to have your tax professional include form 8606.

Where can I get a copy of this form?

The form is available at the IRS website or you can CLICK HERE.

Why do I need to file this form?

Non-deductible contributions have already been taxed. If you don’t properly keep track of them using form 8606, you may end up paying tax on the same money twice!

How can I avoid double taxation?

Make sure to alert your tax advisor of any contributions you made during the year to IRAs. Most custodians will issue you a “year-end important tax information” notice that you may want to provide. You should also keep copies of any checks that you have sent. If you can’t (or don’t) claim a deduction for those contributions, the non-deducted total should be added to form 8606.

Got more questions? Want to see what other people are asking? Check out the Ed Slott IRA Discussion Forum

 

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