How to document non-deductible Traditional IRA contributions beyondfiling Form 8606?


E

eastcoastguyz

When you have a non-deductible Traditional IRA contribution I am aware
that Form 8606 needs to be filed with the return for that tax year.
The other comments I see regarding this are to "keep good records".
What is considered good recording keeping of this? Is keeping a copy
of the return filed with the Form 8606 the record keeping this refers
to? What about the brokerage firm where the IRA account resides,
should they be informed concerning a non-deductible IRA contribution,
and what do they do with this information? Do they keep track
deductible and non-deductible IRA contributions on the brokerage
account statement?

What happens when the money is taken out at retirement with respect to
the non-deductible IRA contributions, how are they treated
differently?

I have searched about this and the only articles I have been able to
find that discuss this pertain to some sort of special conversation of
a Traditional IRA to a Roth IRA in 2010. Thanks!

Edward
 
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A

Arthur Kamlet

When you have a non-deductible Traditional IRA contribution I am aware
that Form 8606 needs to be filed with the return for that tax year.
The other comments I see regarding this are to "keep good records".
What is considered good recording keeping of this? Is keeping a copy
of the return filed with the Form 8606 the record keeping this refers
to? What about the brokerage firm where the IRA account resides,
should they be informed concerning a non-deductible IRA contribution,
and what do they do with this information? Do they keep track
deductible and non-deductible IRA contributions on the brokerage
account statement?
Some IRA custodians notate the IRA as being a conduit or a rollover
IRA when the IRA was created via direct rollover from an employer
plan.

Other than that, the IRA custodian has no responsibility to know
if contributions were or were not deducted by you on your tax
return, so does not track this information. In fact, there is
a box on Form 1099-R which reports IRA distributions that says
the IRA custodian is unable to determine the taxable portion
of the distribution. Except where the custodian does not
allow Rollover/Conduit IRAs to accept new contributions, the
custodian should Always check that Unable to Determine box.
What happens when the money is taken out at retirement with respect to
the non-deductible IRA contributions, how are they treated
differently?
The last form 8606 has the amount of unrecovered nondeductible
contributions in all your traditional IRA accounts -- it is the
IRA Tax Basis -- and Form 8606 takes you through a calculation
that i) finds the amount of your distribution that is not
taxable, and ii) recalculates your new IRA Tax Basis. So if you
always save your last 8606 you can use it the next time you
take an IRA distribution or make a nondeductible contribution
(or a few other things involving Roth IRAs.)
 
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P

Phil Marti

eastcoastguyz said:
When you have a non-deductible Traditional IRA contribution I am aware
that Form 8606 needs to be filed with the return for that tax year.
The other comments I see regarding this are to "keep good records".
What is considered good recording keeping of this?
Keep a record that the contribution was made. That could be your receipt
from the custodian, a year-end statement from the custodian, or the Form
5498 that the custodian issues documenting the contribution.
 

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