Avoiding double taxation on IRA contribution

[Ready]

I have been contributing the max each year to my IRA ($5,500 up until age 50, then $6,500) for quite a few years now. The contributions have never been tax deductible because I have always exceeded the income threshold.

I was just reading that apparently I was supposed to file a form 8606 with my Federal tax returns to let the IRS know I am adding after tax contributions to an IRA, so that it won't be taxed again when I withdraw it. I've used either Turbotax or H&R Block every year and don't ever remember being asked the question about whether my IRA contribution came from pre-tax or after tax funds.

Is it too late at this point to do anything about it? I'm guessing I have about seven years worth of funds that I should have filed this form on. I don't understand how something so obvious doesn't show up with a big warning sign in the tax software programs. Am I missing something?

 

[Golden sunsets]

I don't know for sure but we made similar after tax contributions and our accountant filed the correct forms. However one year he forgot and I caught it in my review of our return after he had already filed. He filed an amended return for that year including the form 8606. I would think you could file amended returns for each of those years-a pain for sure but most definitely worth it once you reach 59.5 and start withdrawing.

 

[Fedup]

I've looked into this recently. You can still your 8606. Send a bunch in for several years with a letter. Some guy on bogglehead forum did.

 

[Dash man]

I've used Turbo Tax for years and always had an 8606 included. Have you double checked your files?

 

[youbet]

I've used Turbo Tax for years and always had an 8606 included. Have you double checked your files?

+1

I'm way past the stage of making Ira contributions. This is my first year of RMD's. Just the same, when I did make non-deductible contributions to my and
DW IRA's, I recall TT walked me through it and automatically did a form 8606.

To check my memory, I just opened 2016 TT and went to the "guide you through it by asking you questions" section on IRA contributions. There, in bold no less, is the question "Did you make a non-deductible IRA contribution in earlier years?" That would key TT to either find your existing IRS basis in your 2015 TT file or ask you for it if that file isn't on your computer. TT then takes that basis, the amount of this year's non-deductible IRA contribution, and populates/calculates an 8606.

I think OP has bigger issues than not having done 8606's for 7 years. He must have completely missed the IRA section because it definitely puts a hand firmly on the back of your head, pushes your face toward the computer screen and asks you about past non-deductible contributions and then goes on the determine if this year's is also non-deductible and populates an 8606.

OP, are you sure there is no 8606 with your filing? Go to the top left of a TT page and click on "forms" and look in the list of forms on the left-hand side.

 

[youbet]

I've used either Turbotax or H&R Block every year and don't ever remember being asked the question about whether my IRA contribution came from pre-tax or after tax funds.

Am I missing something?

Yes.

It makes no difference whether your IRA contribution came from pre-tax or after tax funds. What matters is your income, whether you are in an employer plan and if your spouse is in an employer plan. TT knows, based on your answers to questions, and determines if your traditional IRA contribution is deductible or not.

If your contribution is non-deducible, TT then opens a 8606 and adds this new non-deductible contribution to your IRA basis (which is the sum of your past non-deductible IRA contributions).

It's pretty straightforward. All form 8606 does is keep a running total of your non-deductible IRA contributions so you have a "basis." Later, during the withdrawal period, form 8606 calculates how much of your basis is used each year to lower the amount of your traditional IRA withdrawal that is taxable.

It's pretty simple and if you're going to make non-deductible IRA contributions you should take a few minutes and understand it. TT does everything for you.

 

[Ready]

I've gone back through my returns and I see that I did file one in 2013, but not 2014-16. I guess I must have missed the question three years in a row.

Is there any way to see what the government records of my filings show?

How do I keep track of these contributions over the years? Am I supposed to be keeping a spreadsheet of all the contributions?

And how do I determine when taking out RMDs whether I'm taking out pre-tax or post-tax contributions?

 

[kaneohe]

I've gone back through my returns and I see that I did file one in 2013, but not 2014-16. I guess I must have missed the question three years in a row.

Is there any way to see what the government records of my filings show?

How do I keep track of these contributions over the years? Am I supposed to be keeping a spreadsheet of all the contributions?

And how do I determine when taking out RMDs whether I'm taking out pre-tax or post-tax contributions?

If you do it correctly, each form builds on the prior yr forms, so you only need to look at the most recent one which keeps track of the cumulative post tax contributions (basis)/withdrawals (if any). When you take RMDs, you are taking pro-rata distributions of both pre-tax/post tax contributions & earnings........so if you have half pretax and half post tax, your distribution is considered 50/50 also.

 

[cathy63]

I've gone back through my returns and I see that I did file one in 2013, but not 2014-16. I guess I must have missed the question three years in a row.

Is there any way to see what the government records of my filings show?

How do I keep track of these contributions over the years? Am I supposed to be keeping a spreadsheet of all the contributions?

And how do I determine when taking out RMDs whether I'm taking out pre-tax or post-tax contributions?

I think you can request a transcript of your prior years tax returns from the IRS, but if the form is not in your TTax files then it did not get sent to the IRS. I'm also pretty sure that you only have to send in form 8606 if you actually made non-deductible IRA contributions during that year. Did you contribute during 2014-2016? If not, then you will just use the numbers from the 2013 copy the next time you have to fill out the form.

You keep track of your contributions by filling out form 8606. You could keep a spreadsheet if you want, but if you fill out form 8606 every time you make a non-deductible contribution, that is your running tally.

When you are taking RMDs, you have to value all your IRAs together as if they were one account and take out the required percentage of the total. As you fill out form 8606 for that year, it will help you calculate how much of your withdrawal is taxable. It's a straight proportion, so if 20% of your IRA is non-deductible contributions, then 80% of the withdrawal is taxable and the basis is reduced by the remainder of the withdrawal and the new amount is reported on form 8606.

 

[Fedup]

Turbotax will keep track for you. But why didn't you do an immediate conversion to Roth IRA.

 

[Ready]

Thanks everyone. I think I understand now. And I definitely messed up and did not file for 2014,2015,2016. Total for the three years is $17,500.

Should I file them now? Is there any down side to filing them this late? I read that I don't need to amend my taxes since the contributions were non-deductible, so there would not be any tax consequences associated with prior year tax returns.

 

[Fedup]

Yes just filed 8606 for 2014, 2015, 2016. Enclose a note to the IRS said you made a mistake. I don't know if you have to pay some small fees, but try that first without fees, I'm sure the IRS will send you a bill if they think you owe them money.

 

[Ready]

I just opened my Turbotax 2014 and I see that the form is in there, but for some reason when I printed out a complete set of tax forms to a PDF the form is not there. It shows a basis of $11,000, which is the sum of 2013-2014.

But then in Turbotax 2015 it shows a tax basis from prior years of $5,500. So I'm completely confused now.

Is it possible to call the IRS and ask them what they show for the past four years of 8606 forms?

 

[Fedup]

Do what you want but I would retract from my own tax returns. Since I owe no tax. Btw, I'm planning to do the same, but the difference is I had an immediate Roth conversion so I don't know if I answered the question correctly. In my mind I no longer have any non deductible IRA.

 

[RetireAge50]

I have my own spreadsheet plus the IRS already knows because my brokerage sent them the contribution information. I hope this is good enough.

 

[RE2Boys]

Yes just filed 8606 for 2014, 2015, 2016. Enclose a note to the IRS said you made a mistake. I don't know if you have to pay some small fees, but try that first without fees, I'm sure the IRS will send you a bill if they think you owe them money.

Exactly. Go the the IRS website for each year missed, fill out the form, and send it in with an apologetic note. The 8606 can be filed independent of your tax return. There is a $50 penalty for failure to file the 8606 (see instructions for Form 8606) but I'd recommend waiting to see if the IRS actually decides to invoke the penalty.

Without the 8606, the IRS could deem that you did not have a basis in your T-IRA when you commence withdrawals.

As someone else pointed out, there is no such thing as having one IRA with a basis and another IRA with just before-tax contributions, your T-IRA's are treated as one big individual IRA, regardless of the number of accounts you may have.

 

[RE2Boys]

I have my own spreadsheet plus the IRS already knows because my brokerage sent them the contribution information. I hope this is good enough.

Nope, not if it is not documented on the Form 8606 if it was required to be filed.

 

[Blue Collar Guy]

This is why i go to a professional tax guy, i pay a few hundred and he does the stuff. He told me many years ago, if he can find 1 deduction ,or catch one mistake i would make, he would more than make up his fee. This is the same reason I did not prepare my own will, health proxy, tune up my own car etc , you get the picture.

 

[Fedup]

The professional can also screw it up royallly too. Why don't you use financial advisor. Why do you manage your own money?

 

[Blue Collar Guy]

The professional can also screw it up royallly too. Why don't you use financial advisor. Why do you manage your own money?

my tax guy whacks me $300 bucks, my financial adviser cost me thousands.

 

[Fedup]

Because in my experience they are thieves,

Same with CPA. My daughter hired one guy last year but he screwed up. This year her new CPA has to fix his mistakes.

 

[Ready]

I have only used an accountant once to do my taxes, and he screwed it up and caused me to be audited. Ever since then I decided to do them myself. Not that I'm incapable of making errors, but nobody is going to look out for my best interests better than me.

 

[Ready]

I mailed 8606 forms for 2015 and 2016 to the IRS this week, along with a letter explaining that I inadvertently failed to send them previously. Does anyone know if I should expect some type of confirmation that the forms were received? Or will I only receive a letter if they have a question regarding them?

 

[LOL!]

I mailed 8606 forms for 2015 and 2016 to the IRS this week, along with a letter explaining that I inadvertently failed to send them previously. Does anyone know if I should expect some type of confirmation that the forms were received? Or will I only receive a letter if they have a question regarding them?

I mailed a 2004 Form 8606 to the IRS in 2015. I never received a peep out of the IRS.

I also converted all my tIRA to a Roth in the past 2 years, so filed Form 8606 in 2015 and 2016, too, with the info from my 2004 Form 8606.

Thus, I will state that you should expect nothing from the iRS.

 

[Ready]

LOL!,

Thanks for the reply. That's pretty much what I was thinking. I've always been bothered by the fact that you have to mail things to the IRS, you don't get confirmation of receipt, but if later down the road they argue you never sent them something, they have the right to penalize you for it. And even if you call them to confirm receipt, they can't tell you. It just seems like there has to be a better way.