IRS Form 8606 is the tax form that taxpayers use to:
-Track basis for IRAs
-Document IRA withdrawals and conversions
-Document Roth conversions
Watch this instructional video to learn more about filing IRS Form 8606….(read more)
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The Internal Revenue Service (IRS) Form 8606 is a form that taxpayers use to report nondeductible contributions made to traditional individual retirement accounts (IRAs). This form is important because it instructs the IRS on how to tax the distributions made from these accounts.
For the tax year 2022, individuals who have made nondeductible contributions to their traditional IRAs will need to file Form 8606 along with their tax returns. Here is a detailed walkthrough of the form:
Part I: This section is used to calculate the basis in the traditional IRA account. The basis is the amount of after-tax contributions made to the account. Taxpayers will need to enter the balance of their nondeductible contributions made to their IRA from previous years.
Part II: This section is used to calculate any distributions made from the traditional IRA. Taxpayers will need to enter the total distributions made during the year from all traditional IRAs.
Part III: This section calculates the taxable amount of any distributions made from the traditional IRA account. Taxpayers will need to subtract the basis (calculated in Part I) from the total distribution (calculated in Part II) to arrive at the taxable amount.
Part IV: This section calculates the current year’s nondeductible contribution to the traditional IRA account. Taxpayers will enter any contributions made during the year and add them to the basis from Part I.
Part V: This section is used to calculate the nondeductible contributions made to Roth IRA accounts. Taxpayers will enter the amount of nondeductible contributions made to all their Roth IRAs during the year.
Part VI: If a taxpayer has converted any traditional IRA funds to Roth IRA accounts during the year, they will need to use this section to report the conversion and calculate the taxable amount of the conversion.
Part VII: This section is used to calculate the taxable amount of any distributions made from a Roth IRA account when the account owner has made nondeductible contributions to the account.
Once all sections of the form are completed, the taxpayer will be able to calculate their taxable income based on the information entered. It is important to note that failure to file this form correctly could result in underpayment of taxes or penalties from the IRS. It is recommended to seek the advice of a tax professional to ensure the form is filed correctly and accurately.
Is this form new? Had a Roth for years and never said anything on my taxes.
Please feel free to check out our article, where we've written step by step instructions to help you walk through this tax form! https://www.teachmepersonalfinance.com/irs-form-8606-instructions/