Form 8606 - Nondeductible Contributions to a Traditional IRA

Form 8606 - Nondeductible Contributions to a Traditional IRA

Form 8606 is a multi-purpose form for reporting IRA transactions, specifically,

  • Nondeductible contributions made to traditional IRAs;
  • Distributions from traditional, SEP, or SIMPLE IRAs, if the taxpayer has basis in these IRAs;
  • Conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs; and
  • Distributions from Roth IRAs.

An IRA contribution is nondeductible if the amount contributed
exceeds the contribution limit established by law.

Why do I need to report nondeductible contributions to the IRS? 

Nondeductible IRA contributions create a basis in an IRA account. Nondeductible contributions reduce taxable distributions based on the pro-rata portion of the aggregate value of all traditional IRA plans. Reporting and tracking prevent double taxation on the portion of contributions for which the taxpayer has already paid income taxes.

Taxpayers need to be aware that any contributions over the contribution limit incur an additional 6% penalty for each year the contribution remains in the IRA account. IRS contribution limits include the aggregate total of all contributions toward retirement for a given year. The additional tax is figured on Form 5329.

Contributions to traditional IRAs and to Roth IRAs are limited based on AGI and employer retirement plans:

FILING STATUS2021 AGI LIMITS

TRADITIONAL IRA
DEDUCTION
PHASE OUT

ROTH IRA DEDUCTION
PHASE OUT
BEGINNINGCAPPEDBEGINNINGCAPPED
Single/HOH/MFS*$66,000$76,000$125,000$140,000
MFJ / Qualifying Widow(er)$105,000$125,000$198,000$208,000
MFS $10,000 $10,000
*MFS may qualify for same AGI limits as Single/HOH provided that they did not live with spouse at any time during tax year.


To report a nondeductible contribution to a traditional IRA in Software, from the Federal Section of the tax return (Form 1040) select:

  • Deductions
  • Adjustments
  • Nondeductible IRAs - Complete each field as needed.

If the tax return includes a 1099-R for a distribution from an IRA, print Form 8606 from the Adjustments menu to see the taxable amount of IRA distributions and adjust the taxable amount of the Form 1099-R to match it.



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