Taxpayers should provide details of their nondeductible contributions to traditional individual retirement accounts along with data on distributions from simple IRAs, simplified employee pension, or SEP, IRAs and traditional IRAs, on part I of Form 8606, explains the IRS. Taxpayers who have converted part or all of their IRAs into Roth IRAs need to fill out part II of the form, while those who have received distributions from Roth IRAs should fill out part III of the document.Continue Reading
The IRS requires taxpayers to file Form 8606 for every year they give nondeductible IRA contributions to traditional IRAs, and for every year they have after-tax amounts after receiving distributions from their IRAs, reports Investopedia. Such distributions may include rollovers of past post-tax amounts that taxpayers have received from qualified plans.
Eligible taxpayers who opt not to claim deductions on their traditional IRA contributions to ensure that their future distributions are free of taxes and penalties, and those who are ineligible for deductions, should fill out part I of Form 8606 to inform the IRS that the contributions are nondeductible, notes Investopedia. Taxpayers must also file the document for each year they receive distributions from simple IRAs, SEP IRAs and traditional IRAs that lead to post-tax amounts in their SEP and traditional IRAs.
In general, filing Form 8606 at the right time can result in considerable tax savings, while failure to do so can lead to needless losses, states Investopedia. Taxpayers who are facing difficulties filling out the form should seek professional help.Learn more about Taxes