Forgot to File Form 8606 for Non-Deductible IRAs

Form 8606 Instructions for Forgotten Non-Deductible IRA Contributions

Form 8606
Credit: https://www.irs.gov/

Today's tax question comes from Rose in Ohio. She asks about Form 8606 instructions:

"I made five non-deductible IRA contributions in previous years and failed to file Form 8606. I never deducted the contributions on my tax return. If I submit Form 8606 now for each of those years, will that satisfy the IRS without incurring a penalty? I am 66 years old and have never taken a distribution. Also, do I need to submit an amended 1040?"

Rose, you came to the right place to ask this tax question. I researched this just last year and here's what the Internal Revenue Service told me:

"Although 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 three-year statute of limitations for claiming a refund has expired. The Form 8606 can be submitted without a Form 1040 or a Form 1040X...."

So there you have it. You should file Form 8606 to report your basis in a non-deductible individual retirement account. File one Form 8606 for each year you made non-deductible contributions. This will establish your basis in the IRA. You would then be eligible to either convert your non-deductible IRAs into Roth IRAs, or you could begin taking distributions from the non-deductible IRAs.

Other Options 

You have additional options for IRA contributions made within the last three years.

The IRS allows you to treat them as either deductible or non-deductible -- it's your choice. If you want to claim the deductions, you would have to file an amended tax return using Form 1040X for each year you want to go back and do so. You can only do this within three years from the original filing deadline.

So if you wanted to claim an IRA deduction for tax year 2014, you would have to file the amended return by April 15, 2017, the last day to claim a tax refund for that tax year.

You should consider working with a tax professional to help you figure out if doing this or converting to a Roth IRA would make the most financial sense for you.

The Penalty for Late Filing 

The penalty for filing Form 8606 late is $50, but the IRS sometimes waives this penalty if you can show reasonable cause for why the forms were filed late.

You can read all the interesting details about what to do if your need to file Form 8606 late in my previous article, Forgot to Claim IRA Deduction.

Also see: IRS Forms and Instructions: Form 8606 (PDF) | Instructions for Form 8606

NOTE: Tax laws change periodically and the above information may not reflect the most recent changes. Please consult with a tax professional for the most up-to-date advice. The information contained in this article is not intended as tax advice and it is not a substitute for tax advice.