FAQs ON RETIREMENT PLANS

 

What Is IRS Form 8606?

This form is to report non-deductible contributions to a TRADITIONAL IRA.  This form is filed with your federal tax return. If you are not required to file a federal income tax return for the year, Form 8606 should be filed separately. If you have made nondeductible contributions, failure to file a Form 8606 may result in greater tax liability when you take distributions from your IRA (because you may not be able to substantiate your basis in the IRA). You may also be subject to a penalty for failure to file Form 8606. Refer to the IRS Instructions for Form 8606 for more information.

What if you do not file Form 8606?

If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible. All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made.

If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible. All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made.

Is there a penalty if you do not file Form 8606?

You will have to pay a $50 penalty if you do not file a required Form 8606, unless you can prove that the failure was due to reasonable cause.

Can I file the 8606 late?

One source cited a statement they received from the IRS when questioning them on this issue:  Although Form 8606 is normally submitted with a timely filed Form 1040, the IRS will process a late-filed Form 8606 - even one that is filed after the normal three-year statute of limitations for claiming a refund has expired. The Form 8606 can be submitted without a Form 1040 or Form 1040X...."

 You should file Form 8606 to report your basis in a non-deductible individual retirement account. File one Form 8606 for each year that you made non-deductible contributions. This will establish your basis in the IRA. You would then be eligible either to convert your non-deductible IRAs into Roth IRAs, or you could begin taking distributions from the non-deductible IRAs. You should work with a tax professional to help you figure out if converting to a Roth would make financial sense for you.

The penalty for filing Form 8606 late is $50. However, the IRS sometimes waives this penalty if you can show reasonable cause for why the forms are filed late.

 

What Is IRS Form 5498?

If you have an individual retirement account (IRA), your account's trustee or issuer must report your contributions each year to the IRS. The information is submitted on Form 5498, and your trustee will send you a copy.

Time Frame

Form 5498 should be mailed to you by the end of May.

Information Only

The copy of the Form 5498 you receive is only for your information and personal records. Do not attach it to your tax return.

What the Form Shows

Form 5498 shows traditional IRA contributions for the prior tax year.

IRS Form 5498 Explained

The IRS requires the institution that maintains your IRA to use Form 5498 to report to you and the IRS any IRA contributions, rollovers from certain types of employer-sponsored retirement plans to IRAs (including direct rollovers), re-characterization of IRA contributions (for example when money that originally was contributed to a Roth IRA is moved to a Traditional IRA before the due date for the individualís federal income tax return, including extensions, for the taxable year in which the contribution was originally made), conversions of Traditional IRAs to Roth IRAs, the December 31 fair market value of your IRA account and certain other information.

Do I need to attach a copy of Form 5498 to my federal income tax return?

No, this form isnít needed to file your return. Simply use it to verify that the information we reported to the IRS is correct and then keep it with your tax records.

Is my Traditional IRA contribution deductible on my federal income tax return?

It is generally deductible, within certain limits, if neither you nor your spouse is an active participant in an employer-sponsored retirement plan for the year. If either you or your spouse is an active participant, your ability to make deductible contributions to a Traditional IRA phases out completely if your modified adjusted gross income is at least 70,000 (married, filing jointly), 50,000 (single) or $10,000 (married filing separately). In general, if your spouse is an active participant, but you are not, and you file a joint tax return, your (but not your spouseís) ability to make deductible contributions phases out completely at modified adjusted gross income of $160,000. Report deductible contributions to a Traditional IRA on Form 1040, Line 24, or on Form 1040A, line 17.

Are contributions to a Roth IRA deductible?

No, contributions to a Roth IRA are not deductible. Contributions may be withdrawn at any time without taxes or penalties. Earnings can be withdrawn free of federal income taxes and penalties if the five year aging period and other requirements are met.

How do I report rollover contributions?

Use Form 1040 or 1040A to report rollover contributions (Form 5498, box 2) that balance out the distribution reported on Form 1099-R. Generally, 60-day rollover contributions are not reportable as income on your federal income tax return, although they may be subject to withholding tax.

How do I report conversions and/or re-characterizations from Form 5498 that are reported as distributions on my Form 1099-R?

Use Form 8606 to report conversions to balance out the distribution reported on Form 1099-R. Failure to complete Form 8606 may result in penalties. Re-characterizations are not reported on Form 8606, but special tax reporting rules apply to contributions that have to be re-characterized.

Can I deduct SEP-IRA Contributions?

Generally, if they were made by your employer, you cannot deduct these contributions.  If you made the contributions as a self-employed person (or partner), they may be deductible.

 

 

 

Revised: 4/22/2013