How Can I Enter Form 8606 - Nondeductible Contributions to A Traditional IRA in ProWeb?
Form 8606 is used to report various IRA transactions which include:
- Nondeductible contributions to traditional IRAs
- Distributions from SEP, traditional, or Simple IRAs in case the taxpayer has some claim in these IRAs
- Conversion from SEP, traditional or SIMPLE IRAs to Roth IRAs
- Distributions from Roth IRAs
An IRA contribution becomes nondeductible when the contributed amount is more than the contribution limit permitted by law.
Why is it necessary to report nondeductible contributions to the IRS?
Nondeductible IRA contributions form a basis in an IRA Account. Based on the pro-rata share of the average value of all traditional IRA plans, taxable distributions are reduced by nondeductible contributions. Double taxation on the part of contributions which have already been taxed is prevented through reporting and tracking.
Every contribution made above the contribution limit results in an extra 6% penalty for every year the contribution is left in the IRA account. IRS contributions are inclusive of the average total of all the retirement contributions for a specific year. The additional tax is reported on Form 5329.
AGI and employer retirement plans limit contributions to traditional and Roth IRAs:
To report a nondeductible contribution to a traditional IRA in Taxx Savage ProWeb:
- Go to the Federal Section of a tax return
- Proceed to Deductions
- Then to Adjustments
- Select Nondeductible IRAs - complete all the fields as required.
Print Form 8606 from the Adjustments menu if the return is inclusive of a 1099-R for an IRA distribution, to view the taxable amount of an IRA distribution and be able to adjust the taxable amount of Form 1099-R to match it.
Note: This is not tax advice. It is a guide on how to enter nondeductible contributions to a traditional IRA into the Taxx Savage ProWeb?
Additional Information:
IRS: Instructions for Form 8606, Nondeductible IRAs
IRS: Retirement Topics - IRA Contribution Limits
IRS: Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs)
IRS: Topic No. 451 Individual Retirement Arrangements (IRAs)