Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Subject to income limitations and such, if you have been deducting your contributions to a personal IRA from your year
end income tax form and you decide to stop using the deduction, when it comes time to retire and withdraw funds, is the
money that you DID NOT deduct from your tax form taxable as ordinary income or is it not included as ordinary income
since you already paid taxes on it before to put it into your IRA?
=====

Traditional IRA contributions which you did not deduct must be reported on IRS Form 8606, Nondeductible IRAs. The purpose of this form is to keep track of the basis in your IRA, because it it not included in ordinary income when funds are withdrawn. Only the appreciation in value is taxed as ordinary income. If you neglected to file 8606 with your return, you can still file the 8606 by itself without bothering to file an amended return. If you don't file the 8606 you could be taxed on the full value of your distributions, so do file it!

There is no point in opening a separate account for your nondeductible contributions. This will only generate more paperwork for you, because the accounts will all be comingled on Form 8606 anyway.

If you qualify for a Roth IRA, it is preferable to the nondeductible contribution to your Traditional IRA.
Print the post  

Announcements

Disclaimer:
In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement