Have an IRA? Your Retirement Savings Could Suffer If You Forget This Vital Tax Form
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Vance Cariaga
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If you have an individual retirement account, you need to get acquainted with IRS Form 8606 before filing your tax return this year. Failing to file a Form 8606 could result in a $50 penalty unless you can show reasonable cause. You could also face a $100 penalty for overstating your nondeductible contribution on Form 8606. Beyond that, your retirement savings could take a hit if you don’t file the form.
According to the IRS, you use Form 8606 to report the following:
- Nondeductible contributions you made to traditional IRAs
- Distributions from traditional, SEP or SIMPLE IRAs, if you have ever made nondeductible contributions to traditional IRAs
- Conversions from traditional, SEP or SIMPLE IRAs to Roth IRAs
- Distributions from Roth IRAs
The due date for making contributions for 2023 to your IRA for most people is Monday, April 15, 2024.
Form 8606 is a critical tax form to fill out if you have an IRA because it reports and tracks the rollover eligibility of after-tax assets from these retirement plans, H&R Block noted in a blog.
You will need to file Form 8606 with your tax return for every year you contribute after-tax amounts (non-deductible IRA contribution) to your traditional IRA, according to H&R Block. You must also file it for every year you receive a distribution from your IRA as long as you have after-tax amounts, including after-tax rollover amounts from traditional, SEP or SIMPLE IRA plans.
The form helps you keep track of your basis in the account. In this case, “basis” includes the total amount of nondeductible contributions you make. Without the form, you could be double-taxed on the contributions.
For the 2023 tax year, you can contribute up to $6,500 to a traditional or Roth IRA. If you are 50 or older, the maximum is $7,500. The limit for 2024 is $7,000, plus an additional $1,000 if you are 50 or older. The contribution limit for those who fund SIMPLE plans is $15,500 for 2023 ($16,000 for 2024), plus $3,500 if you are 50 or older.
You can download a Form 8606 on the IRS website. Follow the steps listed on the form and attach it to your Form 1040 when filing your return.
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