TurboTax / Tax Calculators & Tips / All Tax Guides / IRS Tax Forms / What is IRS Form 8606: Nondeductible IRAs

What is IRS Form 8606: Nondeductible IRAs

Updated for Tax Year 2016


OVERVIEW

Taxpayers use Form 8606 to report a number of transactions relating to what the Internal Revenue Service (IRS) calls “Individual Retirement Arrangements” and what most people just call IRAs. These are accounts that provide tax incentives to save and invest money for retirement.

 


IRA basics

IRAs come in several variations:

• With a traditional IRA, you may be able to take a tax deduction for the money you put into the account. Earnings in the account are untaxed. When you withdraw money, you pay income taxes on the earnings and on any contributions that you took a deduction for.
• With a Roth IRA, you get no tax deduction for money you put in, but your earnings are still untaxed, and you generally don’t pay taxes on distributions of what you put in nor on the earnings.
• A Simplified Employee Pension, or SEP-IRA, is a traditional IRA set up for an employee by an employer. The employer contributes money to it.
• A SIMPLE IRA is a traditional IRA set up by an employer, with both the employer and employee contributing money.

Traditional IRAs and deductibility

Generally speaking, in 2016 taxpayers can deduct up to $5,500 per year for money they contribute to a traditional IRA, or $6,500 if they’re age 50 or older. However, if you are eligible to participate in a retirement plan through your employer, such as a pension or a 401K, then your deduction may be limited or disallowed, depending on your income.

As of 2016, if you have a retirement plan at work, you can take only a partial deduction if your income exceeds:

• $61,000 if you're single
• $98,000 if you're married and filing a joint return

You can’t take any deduction for IRA contributions if you have a retirement plan at work and your income is more than:

• $71,000 if you're single
• $118,000 if married filing jointly

Note that you can still contribute money to an IRA in these situations, and your earnings will still grow tax-free. All that’s affected is how much you can deduct in the current year.
 

Form 8606 for nondeductible contributions

Any money you contribute to a traditional IRA that you do not deduct 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.

Reporting them saves you 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.

 

Other uses for IRS Form 8606

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 when you:

• Take distributions from a Roth IRA
• Take distributions from a traditional, SEP or SIMPLE IRA at any time after you have made nondeductible IRA contributions
• Convert a traditional, SEP or SIMPLE IRA into a Roth IRA

 

Get every deduction you deserve

TurboTax Deluxe searches more than 350 tax deductions and credits so you get your maximum refund, guaranteed.

For only $54.99$34.99*
Start for Free

Looking for more information?

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


Security is built into everything we do
Here's how
* Important Offer Details and Disclosures
  • TURBOTAX ONLINE/MOBILE

  • Try for Free/Pay When You File: TurboTax online and mobile pricing is based on your tax situation and varies by product. Free 1040EZ/1040A + Free State offer only available with TurboTax Federal Free Edition; Offer may change or end at any time without notice. Actual prices are determined at the time of print or e-file and are subject to change without notice. Savings and price comparisons based on anticipated price increase expected in March. Special discount offers may not be valid for mobile in-app purchases.
  • TurboTax Self-Employed ExpenseFinder: ExpenseFinder™ is available year round as a feature of QuickBooks Self-Employed (available with TurboTax Self-Employed, see the “QuickBooks Self-Employed Offer with TurboTax Self-Employed” details below.) ExpenseFinder™ expected late January (late February for mobile app). ExpenseFinder™ not available from within TurboTax Self-Employed for people with certain types of expenses and tax situations including paying contractors or employees, home office or vehicle actuals, inventory, self employed health insurance or retirement, asset depreciation, sale of property or vehicles, and farm income. Availability of historical transactions for import may vary by financial institution. Not available for all financial institutions or all credit cards.
  • QuickBooks Self-Employed Offer: File your 2016 TurboTax Self-Employed return by 4/18/17 and receive your complimentary subscription to QuickBooks Self-Employed until 4/30/18. Activation required. Log in to QuickBooks Self-Employed by 7/15/17 via mobile app or at https://selfemployed.intuit.com/turbotax; e-mail address used for activation and log-in. Offer valid only for new QuickBooks Self-Employed customers. See QuickBooks.com for price comparison.
    • When you use TurboTax Self-Employed to file your 2017 taxes, you will have the option to renew your QuickBooks Self-Employed subscription. If you do not file with TurboTax Self-Employed by 4/18/18, you will have the option of renewing your QuickBooks Self-Employed subscription by 4/30/18 for another year at the then-current annual subscription rate. You may cancel your subscription at any time from within the QuickBooks Self-Employed billing section.
  • Pays for itself: In order to pay for the price of TurboTax Self-Employed, you will need at least $600 in deductible business expenses. This calculation is based on the self-employment tax income rate for tax year 2016.
  • Anytime, anywhere: Internet access required; standard message and data rates apply to download and use mobile app.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice.
  • TurboTax Expert Help, Tax Advice and SmartLook: Included with Deluxe, Premier and Self-Employed (via phone or SmartLook); not included with Federal Free Edition. Feature availability varies by device. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Most Popular: TurboTax Deluxe is our most popular product among TurboTax Online users with more complex tax situations.
  • CompleteCheck: Covered under the TurboTax accurate calculations and maximum refund guarantees.
  • TURBOTAX CD/DOWNLOAD SOFTWARE

  • TurboTax CD/Download products: Price includes tax preparation and printing of federal tax returns and free federal e-file of up to 5 federal tax returns. Additional fees apply for e-filing state returns. E-file fees do not apply to New York state returns. Savings and price comparison based on anticipated price increase expected in March. Prices subject to change without notice.
  • Fastest refund possible: Fastest tax refund with e-file and direct deposit; tax refund time frames will vary.
  • Pay for TurboTax out of your federal refund: $X.XX Refund Processing Service fee applies to this payment method. Prices are subject to change without notice. This benefit is available with TurboTax Federal products except TurboTax Business.
  • About our TurboTax Product Experts: Customer service and product support vary by time of year.
  • About our credentialed tax experts: Live tax advice via phone is included with Premier and Home & Business; fees apply for Basic and Deluxe customers. State tax advice is free. Service, experience levels, hours of operation and availability vary, and are subject to restriction and change without notice. Not available for TurboTax Business customers.
  • #1 best-selling tax software: Based on aggregated sales data for all tax year 2015 TurboTax products.
  • Data Import: Imports financial data from participating companies. Quicken and QuickBooks import not available with TurboTax installed on a Mac. Imports from Quicken (2015 and higher) and QuickBooks Desktop (2011 and higher); both Windows only. Quicken import not available for TurboTax Business. Quicken products provided by Quicken Inc., Quicken import subject to change.