NON DEDUCTIBLE IRA CONTRIBUTION

Forum|Forum|6 years ago
March 13, 2020
9 replies
62 views

Is there a penalty for not filing Form 8606 from 2011 to 2016. Is there something that I need to do?

With regards to Part III Traditional IRA Basis Detail #12, what does it mean "Basis for 2018 and earlier years"? Is this the total contributions for the previous years?

Please advise.

Thank you.

ProSeries Basic

This topic has been closed for replies.

dascpa

Level 11

Unfortunately this happens all the time. Either clients don't tell us or if no contribution was made last year the 8606 form doesn't carryover (the basis does if entered), or it's a new client and we have no clue. I've had to enter a ton of catch-up numbers for this and have never encountered a penalty or even a question from the IRS. Re your other question, yes, that is where we enter the cumulative nondeductible contributions. Separately if there is a distribution you will have to also enter the fair market value so you will need 12/31 prior year and 12/31 current year if that happens.

K

kwthetaxguy

Level 4

So, if your client converts their nondeductible IRA to a Roth and they receive a 1099-R, how do you handle? Do you allocate based on the pro-rata rule or do you enter the entire amount as taxable on the return and call it a day? I've read on other sites that some folks go back and file form 8606 for years that they did not report the nondeductible contributions; however, with 15 years of preparing this client's tax returns, this is the first year I've received ANY information on their retirement accounts.

qbteachmt

Level 15

"Is this the total contributions for the previous years?"

No. It's only the Nondeductible amounts contributed for a Traditional IRA. Basis = after-tax funds contributed to the account.

Don't yell at us; we're volunteers

sjrcpa

Level 15

From the 8606 instructions:

If you are required to file Form 8606 to
report a nondeductible contribution to a
traditional IRA for 2020, but don’t do so,
you must pay a $50 penalty, unless you
can show reasonable cause.

The more I know the more I don’t know.

K

kwthetaxguy

Level 4

I understand. This isn't for 2020. The client informed me that in 2020 they converted an IRA to a Roth. We have not taken a deduction for the IRA and therefore, that would suggest it was nondeductible. However, the problem there is form 8606 was never filed either.

dascpa

Level 11

As posted previously you will find a large percentage of people who never filed 8606's, or filed for some years and not the others, or who have filed but the cumulative basis is incorrect. While there could be a nonfiling penalty I have never seen it charged. I have in the past recorded the cumulative basis after forcing/dragging/fighting the client to research in the year of a conversion or distribution and have never had a problem with the IRS questioning it. I would advise the client to have records on hand of proof of contributions/deductions/nondeductions in case the IRS does question the conversion/distribution taxable amount.

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