traditional ira tax ?

[Garydog]

Hi, I have been putting after tax money ($5K per year) since 09 and have not been claiming it on my taxes as my wife and I don't qualify for the tax write off. Should of i filed a 8606 form even though I didn't qualify for the write off???
My question is how does the gov. know how much of the money in the IRA has already been taxed and how much has been earned (gains) and needs to be taxed when withdrawn ???
Also > say we did qualify for the tax write off , does the money that was put in after tax get taxed again when withdrawn seeing it has been deducted from it's given year ?? or is that not taxed and the write off is just that a write off advantage to those who qualify ???
And lets say a have a few years that I do qualify and some that I don't , how does the gov. know? and how does one keep track ???
Sorry for all the questions
Gary

[Alan S.]

Yes, the 8606 is the only place a non deductible TIRA contribution shows on your taxes. The IRS uses your 8606 to determine how much of any future distributions you take are taxable. If you don't file the 8606 each year you make a non deductible contribution, all your future distributions will be fully taxed.

If you qualify for the deduction on your tax return, that money has never been taxed and will be taxed along with any earnings when you take distributions. Filing the 8606 when you can't deduct your contribution is what eliminates eventual double taxation. Each 8606 you file brings forward your current total non deductible amount (called "basis" meaning already taxed). For example, if you made a 2009 non deductible contribution, your 2009 8606 will show the 5,000. If the same thing happens in 2010, you bring forward your prior 5,000 and add the 2010 5,000 to bring your total basis to 10,000 etc. Since you are filing these forms with the IRS, they know what your basis is. Your IRA custodian does NOT know your basis because they do not see your tax returns.

For years that you are sure that you made a contribution (keep your Form 5498 that reports it), and your return does NOT show a deduction, you can file the missing 8606 forms with the IRS without penalty at this time. Download each year's edition and start with the oldest year since these forms are cumulative as illustrated above.

NOTE: If you qualify for a Roth contribution (income limits are higher), you should be making Roth contributions instead of non deductible TIRA contributions. A Roth contribution is not reported on your tax return unless you claim the Savers Credit Form 8880.

[retiredjg]

Welcome to the forum!

Yes, you should have filed Form 8606 each year you put non-deductible contributions into traditional IRA. One for you. A separate one for your wife (if there were contributions in Her IRAs too). Recording this info and sending it to the IRS is what keeps you from paying tax on the money a second time. When you start withdrawing the money from your IRA, you will be given credit for having already paid taxes on some of it. That also happens using Form 8606.

You can get the old Forms 8606 on the internet. Fill out the 09 form first, then 10, then 11, then 12. Each one builds on the previous one. You can send them in all together. There is supposed to be a penalty for filing them late, but I don't believe the IRS has been charging the penalty so far.

And lets say a have a few years that I do qualify and some that I don't , how does the gov. know? and how does one keep track ???

It all happens on that Form 8606. Every time you make a non-deductible contribution, you add it to that year's Form 8606. On the years you do deduct the contributions, you don't add anything to the Form 8606 that year. But you always keep those forms.

When the time comes for taking money out, if half has already been taxed, you only pay tax on half of what you take out. If 25% has been taxed already, you pay tax on the other 75% if you take money out.

Form 8606 is pretty easy. Just follow the instructions.

[livesoft]

What is interesting to me is that the IRS should be able to see if you took a deduction for your IRA contribution or not (at least if you filed a 1040). The IRS also gets a 5498 from your custodian, right? Thus I think the IRS can put 2-and-2 together to create an 8606 for you if they wanted to.

[Garydog]

If I never filed a 8606 where would this 5498 form be ??? It sounds like it was sent to the IRS from my IRA holder/company .. I'm wondering if I should send it in (if I have it ) with the stack of 8606 forms ??

[grabiner]

If I never filed a 8606 where would this 5498 form be ??? It sounds like it was sent to the IRS from my IRA holder/company .. I'm wondering if I should send it in (if I have it ) with the stack of 8606 forms ??

No, you don't send the 5498; one copy is sent to you and another is sent to the IRS, just as with 1099 forms. The IRS uses forms like the 5498 to check its records against your taxes; if you claim to have contributed $5000 to an IRA, then the IRS needs to have some combination of 5498 forms indicating $5000 contributed.

[Garydog]

Thanks so much for the info . I have filled out the forms for tax year 09,10,11 . Now for a stupid ? I'm having my 2012 taxes done in march . Is it wise of me to send these 3 years in now or just take care of it with mt tax guy in march ?? I'm worried that he will put in a $15,000 figure on line 2 (previous years contributions ) and the IRS may or may not of gotten to correcting or updating my 8606 forms ????
Also How should I send this in > just to the IRS's address , should I put att. amended taxes or something like that ?? If sending them in before I do my taxes in march is best...
Thanks again

[retiredjg]

We've seen various answers on this. It might depend on how your tax return is filed. If it is filed by paper, I'd send them all in together in March. If your guy files electronically, I don't know if old Forms can be sent in electronically, so it might be better to send in paper versions by mail now.

Maybe the most fool proof - even if done electronically in other years, file by paper this year so that everything gets there together.

The regular address should be fine. This is not an amended return - just an additional form. Lots of people have overlooked this form. The IRS must have ways to deal with it.

If you are using the same tax guy every year and if that tax guy was informed that you were making non-deductible contributions, the tax guy should have taken care of this. Make sure it gets done in the future. And always keep at least the last Form 8606 (or keep all of them) so you'll have records when you start taking money out of the IRA.

[Garydog]

Thanks again , sent out the forms this morning, have copies . Thanks