I opened an IRA and put $5000 in that account for the 2014 tax year. However, I did not receive any tax deduction because my income was above the threshold. I am planning to convert that IRA to a Roth IRA. ===>>Not everyone qualifies for the traditional IRA deduction. but you can still get some kind of tax benefit from your retirement savings.Then, since your income is too high to deduct traditional IRA contributions on your taxes, as you said you need to consider the R- IRA as an alternative. Basically,as you can see, instead of giving you a tax benefit now in the form of a deduction, a R- IRA allows you to withdraw your money tax-free once you reach retirement age.
The income limits for R- IRA contributions are a little more generous than they are for traditional IRA deductions. If your income makes you ineligible to contribute to a R- IRA directly, there is an alternative way. Basically, the "backdoor" method of contributing to a -R IRA consists of contributing to a traditional IRA (which anyone can do regardless of income, though perhaps without the deduction) and immediately convert your account to r- IRA.
My common sense says that I should not have to pay taxes on this because I did not receive any deduction when I opened the IRA.=====You do actually pay tax on your IRA contributions ; as you can not claim your ira contributions on your return; as said, instead of giving you a tax benefit now in the form of a deduction on your 1040, a R- IRA allows you to withdraw your money tax-free once you reach retirement age. So you acutallly pay tax on your IRA contributions,
Please correct me if I am wrong. If indeed I am correct and I do not have to pay taxes, then what documents do I need to support this
======>as said abvoe; as you contribute to a non-deductible traditional IRA acct., you are required to file and retain a copy of IRS Form 8606. In addition to satisfying the IRS, it is essential to permanently retain copies of the 8606 since the form provides a record of your tax basis in the IRA. This is required information for determining the proper tax imposed on IRA withdrawals. Any money you contribute to a traditional IRA which is not dedcutible on your tax return is a ?nondeductible contribution.? You still must report these contributions on your return, and you use Form 8606 to do so.by reporting them , you savessave money down the road. That?s because no individual?s money is supposed to be subject to federal income tax twice. Form 8606 gets it ?on the record? that a portion of the money in your IRA has already been taxed. Later on, when you take distributions, a portion of the money you get back will not be subject to income tax.The form is not just for reporting nondeductible contributions to traditional IRAs. You also use it to report other IRA-related transactions where the government needs to track the status of your money whether it?s been taxed or untaxed. Form 8606 is also used as you convert a traditional, SEP or SIMPLE IRA into a Roth IRA