TurboTax and Form 8606: A Comprehensive Guide

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Form 8606, officially titled “Nondeductible IRAs,” is a crucial tax form used to report specific transactions related to Individual Retirement Arrangements (IRAs). This form is particularly relevant for individuals who have made nondeductible contributions to traditional IRAs or have taken distributions from IRAs that include nondeductible contributions.

Understanding Nondeductible IRA Contributions

Typically, contributions to traditional IRAs are tax-deductible, meaning they can reduce your taxable income in the year they are made. However, there are income limits that affect the deductibility of IRA contributions. If your income exceeds certain thresholds, your IRA contributions may be partially or fully nondeductible.

Form 8606 and TurboTax

TurboTax, a leading tax preparation software, simplifies the process of filing Form 8606. The software automatically generates and fills out Form 8606 based on the information you provide during the tax preparation process.

Situations Requiring Form 8606

TurboTax will automatically trigger Form 8606 if you report any of the following situations on your tax return:

  • Nondeductible contributions to a traditional IRA
  • Distributions from a traditional, SEP, or SIMPLE IRA

Backdoor Roth IRA – TurboTax

FAQ

Is form 8606 available on TurboTax?

Select Tax Tools on the left and then Print Center. Select Print, save or preview this year’s return. Select Federal return. A window will pop up, scroll down to Form 8606.

Who generates form 8606?

Traditional IRA nondeductible contributions If an IRA owner does not claim a deduction for a regular contribution, the amount contributed is after-tax and is considered basis. Therefore, the IRA owner must file IRS Form 8606 for the year of the contribution to inform the IRS that the contribution is nondeductible.

What happens if I never filed form 8606?

Failure to file Form 8606 for a distribution could result in the IRA owner (or beneficiary) paying income tax and the additional 10% early distribution penalty tax on amounts that should be tax free.

Can form 8606 be filed electronically?

If Form 8606 is filed separately, it cannot be e-filed and must be printed out and mailed to the IRS. The taxpayer address and preparer information can be manually filled in after the form is printed.

Does TurboTax generate form 8606?

TurboTax will usually, but not always, generate Form 8606. Please see the TurboTax FAQ “Where do I find Form 8606?” below for full detail. June 1, 2019 12:41 AM

What is form 8606?

Form 8606 is a tax form distributed by the Internal Revenue Service (IRS) and used by filers who make nondeductible contributions to an individual retirement account (IRA). Any taxpayer with a cost basis above zero for IRA assets should use Form 8606 to prorate the taxable vs. nontaxable distribution amounts.

How do I add a 8606 number to my tax return?

For example, if your most recent Form 8606 was in 2020, then you would carry forward the number located in Line 14 of that year’s Form 8606. This is the case for all tax returns on or after tax year 2001. If you filed your most recent Form 8606 in 2000 or earlier, please refer to the IRS instructions. Add Lines 1 and 2.

Do IRA contributions need to be reported on form 8606?

Nondeductible IRA contributions need to be reported each year on Part I of Form 8606. Tax practitioners should advise clients that filing this form will save additional tax dollars and reduce complexities when funds are eventually distributed from the IRA account during retirement.

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