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Old 11-17-2015, 04:28 PM
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8606 never filed :-(

Opened a very small IRA in 1996 with divided assets from divorce. Never submitted form 8606 to establish cost basis for this IRA. Took distribution (age 61) this year. Will I need to pay taxes on the entire amount? I show the original start amount of the IRA but have no tax documents going back that far to show if it was deducted or not.



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Old 11-18-2015, 04:25 AM
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Originally Posted by reds0318 View Post



#1;Opened a very small IRA in 1996 with divided assets from divorce. Never submitted form 8606 to establish cost basis for this IRA.





#2;Took distribution (age 61) this year. Will I need to pay taxes on the entire amount? I show the original start amount of the IRA but have no tax documents going back that far to show if it was deducted or not.
#1; Basically, you need to file Form 8606 for every year you contribute after-tax amounts /non-deductible IRA contribution to your Traditional IRA, and every year you receive a distribution from your IRA as long as you have after-tax amounts, including rollovers of after-tax amounts from qualified plans, in any of your ira.Even though Form 8606 is normally submitted with a timely filed Form 1040, the IRS will process a late-filed Form 8606 even one that is filed after the normal 3year SOLs for claiming a refund has expired; If you are required to file Form 8606 to report a nondeductible contribution to a traditional IRA for 2010, but do not do so, you must pay a $50 penalty, unless you can show reasonable cause. However, you usually are not charged a late fee for any of them.


#2;Since you have after-tax amounts in your Traditional IRA, you must, when taking a distribution, determine how much of the distribution is attributable to the after-tax amount. The portion of the distribution that is non-taxable must be pro-rated with amounts that are taxable. For instance, say , you contributed $2K in after-tax amounts and has a pretax balance of $8K, a distribution of $5K would be pro-rated to include $1K after-tax and $4K in pretax assets. This pro-rata treatment must continue until all the after-tax amounts have been distributed.



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Old 11-18-2015, 07:42 AM
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Thank you for the detailed response. I opened the IRA (with the help of an accountant) in 1996 and never made additional contributions. I have no documents from 1996 but I do have the statement showing initial and only deposit. I'm just not sure if filed one for the tax year the IRA was opened. If I assume one was filed what is the damage if one was not? Or should I assume one was not and file it anyway?



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Old 11-18-2015, 08:21 AM
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Thank you for the detailed response. I opened the IRA (with the help of an accountant) in 1996 and never made additional contributions. I have no documents from 1996 but I do have the statement showing initial and only deposit. I'm just not sure if filed one for the tax year the IRA was opened. ========>>>>>>>>>>>>>> it up to you.Failing to record a nondeductible contribution on form 8606 had no effect on the taxes you paid when you omitted the form. Where it hurts you is when distributions come out of your IRA or if you want to convert to a Roth IRA inthe future. Nondeductible contributions are not taxed in the future because they represent already taxed income. Because you omitted nondeductible contributions, the IRS thinks your "basis" is lower than it is and will expect more income to be taxable upon the distribution or conversion. You should be able to get the contribution amounts and dates from the financial institution but the institution won't know if you deducted or didn't deduct those contributions. For that information, you will need copies of your prior tax returns. If you don't have them going back as far as you would like, you can get "transcripts" of prior year returns 1987 was the first year nondeductible contributions were allowed .

If I assume one was filed what is the damage if one was not? Or should I assume one was not and file it anyway===========>>>>>>>>as mentioned above;



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Old 11-24-2015, 04:25 PM
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Thank you so much for the info. Unfortunately the original investment broker is no longer around and the bank has changed hands more than once. I am fortunate I have a statement showing opening balance but no longer have the returns or the bank statements. I will go ahead and file the 8606 even though it clearly states for the current year? I am most certain I never claimed this on any tax return. Unfortunately tax transcripts are only available for 7 years then "destroyed by law" according to the IRS.

Quote:
Originally Posted by Wnhough View Post
Thank you for the detailed response. I opened the IRA (with the help of an accountant) in 1996 and never made additional contributions. I have no documents from 1996 but I do have the statement showing initial and only deposit. I'm just not sure if filed one for the tax year the IRA was opened. ========>>>>>>>>>>>>>> it up to you.Failing to record a nondeductible contribution on form 8606 had no effect on the taxes you paid when you omitted the form. Where it hurts you is when distributions come out of your IRA or if you want to convert to a Roth IRA inthe future. Nondeductible contributions are not taxed in the future because they represent already taxed income. Because you omitted nondeductible contributions, the IRS thinks your "basis" is lower than it is and will expect more income to be taxable upon the distribution or conversion. You should be able to get the contribution amounts and dates from the financial institution but the institution won't know if you deducted or didn't deduct those contributions. For that information, you will need copies of your prior tax returns. If you don't have them going back as far as you would like, you can get "transcripts" of prior year returns 1987 was the first year nondeductible contributions were allowed .

If I assume one was filed what is the damage if one was not? Or should I assume one was not and file it anyway===========>>>>>>>>as mentioned above;



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Old 11-24-2015, 04:35 PM
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Originally Posted by reds0318 View Post
. I will go ahead and file the 8606 even though it clearly states for the current year? I am most certain I never claimed this on any tax return. Unfortunately tax transcripts are only available for 7 years then "destroyed by law" according to the IRS.
I think so; there is no p enalty to file past form 8606



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