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Nondeductible Contributions

 

What are nondeductible IRA contributions?

Although your deduction may be reduced or eliminated, you can still contribute the full amount permitted by law up to $4,000 ($5,000 if age 50 or older) or  100% of your taxable compensation, whichever is less, to your IRA.

How to report nondeductible IRA contributions?

Any contribution amount you cannot deduct must be report to the IRS on Form 8606, Nondeductible IRAs, whether or not your have to file a tax return.

Form 8606 is used to keep track of your total nondeductible contributions by adding prior-year nondeductible contributions to those you are making for the current tax year.

 

What happens is I don't report nondeductible contributions?

If you do not report nondeductible contributions, all of the contributions to your traditional IRA will be treated as deductible contributions.

You will be taxed on these contributions when you withdraw them, even though they were not included in your IRA deduction and were already taxed for the tax year your contributed them.

 

Can I file a joint Form 8606 with my spouse?

An IRA belongs to an individual. An IRA cannot be owned jointly. Therefore, each spouse who has a nondeductible contribution must file a separate form 8606.

 

What is the penalty for not filing the form 8606?

If you do not file the form 8606 as required, you will have to pay a $50 fine unless you can prove that the failure was due to a reasonable cause.


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