Instructions For Form 8606 - Nondeductible Iras

Example. On May 28, 2008, you

limitation) or taken for the excess

Overstatement Penalty

contributed $4,000 to your traditional

contributions.

If you overstate your nondeductible

IRA. The value of the IRA was $18,000

contributions, you must pay a $100

Include the total amount distributed

prior to the contribution. On December

penalty, unless you can show

on Form 1040, line 15a; Form 1040A,

29, 2008, when you are age 57 and the

reasonable cause.

line 11a; or Form 1040NR, line 16a;

value of the IRA is $23,600, you realize

and attach a statement to your return

you cannot make the entire contribution

explaining the distribution. See the

because your taxable compensation for

What Records Must I

example below.

the year will be only $3,000. You

Keep?

decide to have $1,000 of the

If you meet these conditions and are

contribution returned to you and

To verify the nontaxable part of

otherwise required to file Form 8606:

•

withdraw $1,073 from your IRA ($1,000

distributions from your IRAs, including

Do not take into account the amount

contribution plus $73 earnings). You did

Roth IRAs, keep a copy of the following

of the withdrawn contributions in

not make any other withdrawals or

forms and records until all distributions

figuring line 2, and

•

contributions. You are not required to

are made.

Do not include the amount of the

•

file Form 8606. You deduct the $3,000

Page 1 of Forms 1040 (or Forms

withdrawn contributions on line 7.

remaining contribution on Form 1040.

1040A, 1040NR, or 1040-T) filed for

Example. You are single, you

You include $1,073 on Form 1040, line

each year you made a nondeductible

retired in 2005, and you had no taxable

15a, and $73 on line 15b. You attach a

contribution to a traditional IRA.

compensation after 2005. However, you

•

statement to your tax return explaining

Forms 8606 and any supporting

made traditional IRA contributions (that

the distribution. Because you properly

statements, attachments, and

you did not deduct) of $3,000 in 2006

removed the excess contribution with

worksheets for all applicable years.

and $4,000 in 2007. In November 2008,

•

the related earnings by the due date of

Forms 5498 or similar statements

a tax practitioner informed you that you

your tax return, you are not subject to

you received each year showing

had made excess contributions for

the additional 6% tax on excess

contributions you made to a traditional

those years because you had no

contributions. However, because you

IRA or Roth IRA.

taxable compensation. You withdrew

•

were under age 59

at the time of the

Forms 5498 or similar statements

the $7,000 and filed amended returns

distribution, the $73 of earnings is

you received showing the value of your

for 2006 and 2007 reflecting the

subject to the additional 10% tax on

traditional IRAs for each year you

additional 6% tax on excess

early distributions. You include $7.30

received a distribution.

contributions on Form 5329. You

•

on Form 1040, line 59.

Forms 1099-R or W-2P you received

include the $7,000 distribution on your

for each year you received a

2008 Form 1040, line 15a, enter -0- on

distribution.

Return of Excess

line 15b, and attach a statement to your

Note. Forms 1040-T and W-2P are

return explaining the distribution,

Traditional IRA

forms that were used in prior years.

including the fact that you filed

Contributions

amended returns for 2006 and 2007

and paid the additional 6% tax on the

The return (distribution) in 2008 of

excess contributions for those years.

excess traditional IRA contributions for

Specific Instructions

The statement indicates that the

years prior to 2008 is not taxable if all

distribution is not taxable because (a) it

three of the following apply.

Name and social security number

was made after the due dates of your

(SSN). If you file a joint return, enter

1. The distribution was made after

2006 and 2007 tax returns, including

only the name and SSN of the spouse

the due date, including extensions, of

extensions, (b) your total IRA

whose information is being reported on

your tax return for the year for which

contributions did not exceed $4,000

Form 8606. If both you and your

the contribution was made (if the

($5,000 if age 50 or older at the end of

spouse are required to file Form 8606,

distribution was made earlier, see

the year) for 2006 or 2007, and (c) you

file a separate Form 8606 for each of

Return of IRA Contributions on page 4).

did not take a deduction for the

you.

2. The total contributions (excluding

contributions, and no deduction was

rollovers and conversions) to your

allowable because you did not have

Part I—Nondeductible

traditional and SEP IRAs for the year

any taxable compensation for those

for which the excess contribution was

years. The statement also indicates that

Contributions to

made did not exceed:

the distribution reduced your excess

Traditional IRAs and

a. $4,000 ($5,000 if age 50 or older

contributions to -0-, as reflected on your

at the end of the year) for 2007 or

2008 Form 5329 and it indicates your

Distributions From

2006,

adjusted basis in nondeductible

b. $4,000 ($4,500 if age 50 or older

contributions.

Traditional, SEP, and

at the end of the year) for 2005,

SIMPLE IRAs

c. $3,000 ($3,500 if age 50 or older

Amending Form 8606

at the end of the year) for years after

After you file your return, you can

2001 and before 2005,

Line 1

change a nondeductible contribution to

d. $2,000 for years after 1996 and

If you used the IRA Deduction

a traditional IRA to a deductible

before 2002, or

contribution or vice versa. You also

Worksheet in the Form 1040 or 1040A

e. $2,250 for years before 1997.

instructions, subtract line 12 (line 10 for

may be able to make a

If your total IRA contributions for the

Form 1040A) of the worksheet (or the

recharacterization (see page 3). If

year included employer contributions to

necessary, complete a new Form 8606

amount you chose to deduct on Form

a SEP IRA, increase the $4,000

1040, line 32, or Form 1040A, line 17, if

showing the revised information and file

($5,000 or $4,500, if applicable),

less) from the smaller of line 10 or line

it with Form 1040X, Amended U.S.

$3,000 ($3,500, if applicable), $2,000,

11 (line 8 or line 9 for Form 1040A) of

Individual Income Tax Return.

or $2,250 by the smaller of the

the worksheet. Enter the result on line 1

employer contributions or $45,000

Penalty for Not Filing

of Form 8606. You cannot deduct the

($44,000 for 2006, $42,000 for 2005,

amount included on line 1.

$41,000 for 2004, $40,000 for 2003 and

If you are required to file Form 8606 to

2002, $35,000 for 2001, or $30,000 for

report a nondeductible contribution to a

If you used the worksheet Figuring

years before 2001).

traditional IRA for 2008, but do not do

Your Reduced IRA Deduction for 2008

3. No deduction was allowable

so, you must pay a $50 penalty, unless

in Pub. 590, enter on line 1 of Form

(without regard to the modified AGI

you can show reasonable cause.

8606 any nondeductible contributions

-5-

Instructions For Form 8606 - Nondeductible Iras - 2008 Page 5

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