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Author: brwhiz Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76235  
Subject: Re: IRA quandry Date: 6/24/2002 8:45 PM
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If you make a non-deductible contribtuion to your traditional IRA, you will get the contribution back without taxes. So you're not taxed twice on the contribution. (Unless, of course, you don't keep a record of your non-deductible contribution.) The earnings would be taxed when withdrawn.

It's a little bit more complicated than just keeping a record. In any year that you make non-deductible contributions to a traditional IRA, you must file IRS Form 8606 with your return. Failure to do so will result in a fine of $50.00 and possibly getting taxed twice on your contribution.

When you take a distribution from the IRA, you have to file Form 8606 again to compute how much of the distribution resulted from tax-paid contributions and how much was the result of tax-deferred earnings or deductible contributions.

That's just one of the reasons that I'm funding a Roth IRA exclusively. No Form 8606 to worry about on either end.
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