Instructions for Form 8606 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
IRA contribution limit increased.
You and your spouse, if filing jointly, may each be able to contribute up to $5,000 if age 50 or older at the end
of 2006. See Overall
Contribution Limit for Traditional and Roth IRAs that begins on page 2.
Nontaxable combat pay.
If you were a member of the U.S. Armed Forces, any nontaxable combat pay you received is included in taxable compensation
for purposes of
determining your IRA contribution limit. See Overall Contribution Limit for Traditional and Roth IRAs that begins on page 2.
This rule also applies for 2004 and 2005. To see if you can increase your IRA contribution limit for those years,
see Pub. 590, Individual
Retirement Arrangements (IRAs).
Use Form 8606 to report:
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Nondeductible contributions you made to traditional IRAs,
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Distributions from traditional, SEP, or SIMPLE IRAs, if you have ever made nondeductible contributions to traditional IRAs,
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Distributions from Roth IRAs, and
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Conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs.
Additional information.
See Pub. 590, for more details.
If you received distributions from a traditional, SEP, or SIMPLE IRA in 2006 and you have never made nondeductible contributions
to
traditional IRAs, do not report the distributions on Form 8606. Instead, see the instructions for Form 1040, lines 15a and
15b; Form 1040A, lines 11a
and 11b; or Form 1040NR, lines 16a and 16b. Also, to find out if any of your contributions to traditional IRAs are deductible,
see the instructions
for Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 31.
File Form 8606 if any of the following apply.
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You made nondeductible contributions to a traditional IRA for 2006, including a repayment of a qualified hurricane or reservist
distribution.
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You received distributions from a traditional, SEP, or SIMPLE IRA in 2006 and your basis in traditional IRAs is more than
zero. For this
purpose, a distribution does not include a rollover (other than a repayment of a qualified hurricane distribution), qualified
charitable distribution,
conversion, recharacterization, or return of certain contributions.
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You converted an amount from a traditional, SEP, or SIMPLE IRA to a Roth IRA in 2006 (unless you recharacterized the entire
conversion—see page 3).
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You received distributions from a Roth IRA in 2006 (other than a rollover, recharacterization, or return of certain contributions—see
page 7).
Note. If you recharacterized a 2006 Roth IRA contribution as a traditional IRA contribution, or vice versa, treat the contribution
as having been made to the second IRA, not the first IRA. See page 3.
If you have any qualified hurricane distributions, complete Part I of Form 8915 before you complete Form 8606.
You do not have to file Form 8606 solely to report regular contributions to Roth IRAs. But see What Records Must I Keep?
on page 5.
File Form 8606 with your 2006 Form 1040, 1040A, or 1040NR. If you are not required to file an income tax return but are required
to file Form 8606,
sign Form 8606 and send it to the Internal Revenue Service at the same time and place you would otherwise file Form 1040,
1040A, or 1040NR.
Maximum Roth IRA Contribution Worksheet (keep for your records)
Caution:If married filing jointly and the combined taxable compensation (defined on this page)
for you and your spouse is less than $8,000 ($9,000 if one spouse is 50 or older at the end of 2006; $10,000 if both spouses
are 50 or older at the
end of 2006), do not use this worksheet. Instead, see Pub. 590 for special rules. |
1
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If married filing jointly, enter $4,000 ($5,000 if age 50 or older at the end of 2006). All others, enter
the smaller of $4,000 ($5,000 if age 50 or older at the end of 2006) or your taxable compensation (defined on this page)
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1
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2
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Enter your total contributions to traditional IRAs for 2006
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2
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3
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Subtract line 2 from line 1
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3
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4
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Enter: $160,000 if married filing jointly or qualifying widow(er); $10,000 if married filing separately and
you lived with your spouse at any time in 2006. All others, enter $110,000
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4
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5
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Enter your modified AGI for Roth IRA purposes (see this page)
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5
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6
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Subtract line 5 from line 4. If zero or less, stop here; you may not contribute to a Roth IRA
for 2006. See Recharacterizations on page 3 if you made Roth IRA contributions for 2006
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6
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7
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If line 4 above is $110,000, enter $15,000; otherwise, enter $10,000. If line 6 is more than or equal to
line 7, skip lines 8 and 9 and enter the amount from line 3 on line 10
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7
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8
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Divide line 6 by line 7 and enter the result as a decimal (rounded to at least 3 places). If the result is
1.000 or more, enter 1.000
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8
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9
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Multiply line 1 by line 8. If the result is not a multiple of $10, increase it to the next multiple of $10
(for example, increase $490.30 to $500). Enter the result, but not less than $200
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9
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10
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Maximum 2006 Roth IRA Contribution. Enter the smaller of line 3 or line 9. See
Recharacterizations on page 3 if you contributed more than this amount to Roth IRAs for 2006
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10
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A qualified employer plan (retirement plan) can maintain a separate account or annuity under the plan (a deemed IRA) to receive
voluntary employee
contributions. If in 2006 you had a deemed IRA, use the rules for either a traditional IRA or a Roth IRA depending on which
type it was. See Pub. 590
for more details.
For purposes of Form 8606, a traditional IRA is an individual retirement account or an individual retirement annuity other
than a SEP, SIMPLE, or
Roth IRA.
Contributions.
An overall contribution limit applies to traditional IRAs and Roth IRAs. See Overall Contribution Limit for Traditional and Roth IRAs
that begins on page 2. Contributions to a traditional IRA may be fully deductible, partially deductible, or completely nondeductible.
Basis.
Your basis in traditional IRAs is the total of all your nondeductible contributions to traditional IRAs minus the
total of all your nontaxable
distributions, adjusted if necessary (see the instructions for line 2 on page 5). Keep track of your basis to figure the nontaxable
part of your
future distributions.
A simplified employee pension (SEP) is an employer-sponsored plan under which an employer can make contributions to traditional
IRAs for its
employees. If you make contributions to that IRA (excluding employer contributions you make if you are self-employed), they
are treated as
contributions to a traditional IRA and may be deductible or nondeductible. SEP IRA distributions are reported in the same
manner as traditional IRA
distributions.
Your participation in your employer's SIMPLE IRA plan does not prevent you from making contributions to a traditional, SEP,
or Roth IRA.
A Roth IRA is similar to a traditional IRA, but has the following features.
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Contributions are never deductible.
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Contributions can be made after the owner reaches age 70½.
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No minimum distributions are required during the Roth IRA owner's lifetime.
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Qualified distributions are not includible in income.
Qualified distribution.
Generally, a qualified distribution is any distribution made:
Exception.
Any distribution made during the 5-year period beginning with the first year for which you made a Roth IRA contribution
or conversion is not a
qualified distribution, and may be taxable.
Contributions.
You can contribute to a Roth IRA for 2006 only if your 2006 modified adjusted gross income (AGI) for Roth IRA purposes
is less than:
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$10,000 if married filing separately and you lived with your spouse at any time in 2006,
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$160,000 if married filing jointly or qualifying widow(er), or
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$110,000 if single, head of household, or if married filing separately and you did not live with your spouse at any time in
2006.
Use the Maximum Roth IRA Contribution Worksheet below to figure the maximum amount you can contribute to a Roth IRA
for 2006. If you are married
filing jointly, complete the worksheet separately for you and your spouse.
If you contributed too much, see Recharacterizations on page 3.
Modified AGI for Roth IRA purposes.
First, figure your AGI (Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 36). Then, refigure it by:
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Subtracting the following.
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Roth IRA conversions included on Form 1040, line 15b; Form 1040A, line 11b; or Form 1040NR, line 16b.
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Minimum required distributions from IRAs (for conversions only).
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Adding the following.
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IRA deduction from Form 1040, line 32; Form 1040A, line 17; or Form 1040NR, line 31.
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Student loan interest deduction from Form 1040, line 33; Form 1040A, line 18; or Form 1040NR, line 32.
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Tuition and fees deduction from Form 1040, line 35.
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Domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 33.
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Exclusion of interest from Form 8815, Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989.
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Exclusion of employer-provided adoption benefits from Form 8839, Qualified Adoption Expenses.
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Foreign earned income exclusion from Form 2555, Foreign Earned Income, or Form 2555-EZ, Foreign Earned Income Exclusion.
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Foreign housing exclusion or deduction from Form 2555.
When figuring modified AGI for Roth IRA purposes, you may have to refigure items based on modified AGI, such as taxable social
security benefits
and passive activity losses allowed under the special allowance for rental real estate activities. See Can You Contribute
to a Roth IRA? in
Pub. 590 for details.
Distributions.
See the instructions for Part III that begin on page 7.
Overall Contribution Limit for Traditional and Roth IRAs
If you are not married filing jointly, your limit on contributions to traditional and Roth IRAs is the smaller of $4,000 ($5,000
if age 50 or older
at the end of 2006) or your taxable compensation (see below). If you are married filing jointly, your contribution limit is
generally $4,000 ($5,000
if age 50 or older at the end of 2006) and your spouse's contribution limit is $4,000 ($5,000 if age 50 or older at the end
of 2006) as well. But if
the combined taxable compensation of both you and your spouse is less than $8,000 ($9,000 if one spouse is 50 or older at
the end of 2006; $10,000 if
both spouses are 50 or older at the end of 2006), see Pub. 590 for special rules. This limit does not apply to employer contributions
to a SEP or
SIMPLE IRA.
Note.
Rollovers, Roth IRA conversions, and repayments of qualified hurricane and reservists distributions do not affect your contribution
limit.
The amount you can contribute to a Roth IRA may also be limited by your modified AGI (see Contributions and the Maximum Roth
IRA
Contribution Worksheet on this page).
Taxable compensation includes the following.
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Wages, salaries, tips, etc. If you received a distribution from a nonqualified deferred compensation plan or nongovernmental
section 457
plan that is included in Form W-2, box 1, or in Form 1099-MISC, box 7, do not include that distribution in taxable compensation.
The distribution
should be shown in (a) Form W-2, box 11, (b) Form W-2, box 12, with code Z, or (c) Form 1099-MISC, box 15b. If it is not,
contact your employer for
the amount of the distribution.
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Nontaxable combat pay if you were a member of the U.S. Armed Forces.
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Self-employment income. If you are self-employed (a sole proprietor or a partner), taxable compensation is your net earnings
from your trade
or business (provided your personal services are a material income-producing factor) reduced by your deduction for contributions
made on your behalf
to retirement plans and the deduction allowed for one-half of your self-employment tax.
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Alimony and separate maintenance.
See Pub. 590 for details.
Generally, you can recharacterize (correct) an IRA contribution or Roth IRA conversion by making a trustee-to-trustee transfer
from one IRA to
another type of IRA. Trustee-to-trustee transfers are made directly between financial institutions or within the same financial
institution. You
generally must make the transfer by the due date of your return (including extensions) and reflect it on your return. However,
if you timely filed
your return without making the transfer, you can make the transfer within 6 months of the due date of your return, excluding
extensions. If necessary,
file an amended return reflecting the transfer (see page 5). Write “Filed pursuant to section 301.9100-2” on the amended return.
Reporting recharacterizations.
Any recharacterized conversion will be treated as though the conversion had not occurred. Any recharacterized contribution
will be treated as
having been originally contributed to the second IRA, not the first IRA. The amount transferred must include related earnings
or be reduced by any
loss. In most cases, the related earnings that you must transfer are figured by your IRA trustee or custodian. If you need
to figure the related
earnings, see How Do You Recharacterize a Contribution in Pub. 590. Any earnings or loss that occurred in the first IRA will be treated as
having occurred in the second IRA. You cannot deduct any loss that occurred while the funds were in the first IRA. Also, you
cannot take a deduction
for a contribution to a traditional IRA if the amount is later recharacterized. See below for how to report the three different
types of
recharacterizations, including the statement that must be attached to your return explaining the recharacterization.
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You converted an amount from a traditional, SEP, or SIMPLE IRA to a Roth IRA in 2006 and later recharacterized all or part
of the amount
back to a traditional, SEP, or SIMPLE IRA. If you only recharacterized part of the amount converted, report the amount not
recharacterized on Form
8606. If you recharacterized the entire amount, do not report the recharacterization on Form 8606. In either case, attach
a statement to your return
explaining the recharacterization and include the amount converted from the traditional, SEP, or SIMPLE IRA in the total on
Form 1040, line 15a; Form
1040A, line 11a; or Form 1040NR, line 16a. If the recharacterization occurred in 2006, also include the amount transferred
back from the Roth IRA on
that line. If the recharacterization occurred in 2007, report the amount transferred only in the attached statement, and not
on your 2006 or 2007 tax
return (a 2007 Form 1099-R should be sent to you by January 31, 2008, stating that you made a recharacterization of an amount
converted in the prior
year).
Example. You are married filing jointly and converted $20,000 from your traditional IRA to a new Roth IRA on May 20, 2006. On April
7,
2007, you determine that your 2006 modified AGI for Roth IRA purposes will exceed $100,000, and you are not allowed to make
a Roth IRA conversion. The
value of the Roth IRA on that date is $19,000. You recharacterize the conversion by transferring that entire amount to a traditional
IRA in a
trustee-to-trustee transfer. You report $20,000 on Form 1040, line 15a. You do not include the $19,000 on line 15a because
it did not occur in 2006
(you also do not report that amount on your 2007 return because it does not apply to the 2007 tax year). You attach a statement
to Form 1040
explaining that (a) you made a conversion of $20,000 from a traditional IRA on May 20, 2006, (b) you recharacterized the entire
amount, which was then
valued at $19,000, back to a traditional IRA on April 7, 2007, and (c) you recharacterized because your 2006 modified AGI
for Roth IRA purposes
exceeded $100,000.
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You made a contribution to a traditional IRA and later recharacterized part or all of it to a Roth IRA. If you recharacterized
only part of
the contribution, report the nondeductible traditional IRA portion of the remaining contribution, if any, on Form 8606, Part
I. If you recharacterized
the entire contribution, do not report the contribution on Form 8606. In either case, attach a statement to your return explaining
the
recharacterization. If the recharacterization occurred in 2006, include the amount transferred from the traditional IRA on
Form 1040, line 15a; Form
1040A, line 11a; or Form 1040NR, line 16a. If the recharacterization occurred in 2007, report the amount transferred only
in the attached
statement.
Example. You are single, covered by a retirement plan, and you contributed $4,000 to a new traditional IRA on May 27, 2006. On February
24, 2007, you determine that your 2006 modified AGI will limit your traditional IRA deduction to $1,000. The value of your
traditional IRA on that
date is $4,400. You decide to recharacterize $3,000 of the traditional IRA contribution as a Roth IRA contribution, and have
$3,300 ($3,000
contribution plus $300 related earnings) transferred from your traditional IRA to a Roth IRA in a trustee-to-trustee transfer.
You deduct the $1,000
traditional IRA contribution on Form 1040. You are not required to file Form 8606, but you must attach a statement to your
return explaining the
recharacterization. The statement indicates that you contributed $4,000 to a traditional IRA on May 27, 2006; recharacterized
$3,000 of that
contribution on February 24, 2007, by transferring $3,000 plus $300 of related earnings from your traditional IRA to a Roth
IRA in a
trustee-to-trustee transfer; and that all $1,000 of the remaining traditional IRA contribution is deducted on Form 1040. You
do not report the $3,300
distribution from your traditional IRA on your 2006 Form 1040 because the distribution occurred in 2007. You do not report
the distribution on your
2007 Form 1040 because the recharacterization related to 2006 and was explained in an attachment to your 2006 return.
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You made a contribution to a Roth IRA and later recharacterized part or all of it to a traditional IRA. Report the nondeductible
traditional
IRA portion, if any, on Form 8606, Part I. If you did not recharacterize the entire contribution, do not report the remaining
Roth IRA portion of the
contribution on Form 8606. Attach a statement to your return explaining the recharacterization. If the recharacterization
occurred in 2006, include
the amount transferred from the Roth IRA on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a. If the recharacterization
occurred in
2007, report the amount transferred only in the attached statement, and not on your 2006 or 2007 tax return.
Example. You are single and contributed $4,000 to a new Roth IRA on June 14, 2006. On December 27, 2006, you determine that your 2006
modified AGI will allow a full traditional IRA deduction. You decide to recharacterize the Roth IRA contribution as a traditional
IRA contribution and
have $4,200, the balance in the Roth IRA account ($4,000 contribution plus $200 related earnings), transferred from your Roth
IRA to a traditional IRA
in a trustee-to-trustee transfer. You deduct the $4,000 traditional IRA contribution on Form 1040. You are not required to
file Form 8606, but you
must attach a statement to your return explaining the recharacterization. The statement indicates that you contributed $4,000
to a new Roth IRA on
June 14, 2006; recharacterized that contribution on December 27, 2006, by transferring $4,200, the balance in the Roth IRA,
to a traditional IRA in a
trustee-to-trustee transfer; and that $4,000 of the traditional IRA contribution is deducted on Form 1040. You include the
$4,200 distribution on your
2006 Form 1040, line 15a.
Return of IRA Contributions
If, in 2006, you made traditional IRA contributions or Roth IRA contributions for 2006 and you had those contributions returned
to you with any
related earnings (or less any loss) by the due date (including extensions) of your 2006 tax return, the returned contributions
are treated as if they
were never contributed. Do not report the contribution or distribution on Form 8606 or take a deduction for the contribution.
However, you must report
the distribution and any related earnings on your 2006 Form 1040, lines 15a and 15b; Form 1040A, lines 11a and 11b; or Form
1040NR, lines 16a and 16b.
Attach a statement explaining the distribution. You cannot deduct any loss that occurred (see Pub. 590 for an exception if
you withdrew the entire
amount in all your traditional or Roth IRAs). Also, if you were under age 59½ at the time of a distribution with related earnings,
you
generally are subject to the additional 10% tax on early distributions (see Form 5329, Additional Taxes on Qualified Plans
(Including IRAs) and Other
Tax-Favored Accounts).
If you timely filed your 2006 tax return without withdrawing a contribution that you made in 2006, you can still have the
contribution returned to
you within 6 months of the due date of your 2006 tax return, excluding extensions. If you do, file an amended return with
“Filed pursuant to section
301.9100-2” written at the top. Report any related earnings on the amended return and include an explanation of the withdrawal. Make
any other
necessary changes on the amended return (for example, if you reported the contributions as excess contributions on your original
return, include an
amended Form 5329 reflecting that the withdrawn contributions are no longer treated as having been contributed).
In most cases, the related earnings that you must withdraw are figured by your IRA trustee or custodian. If you need to figure
the related earnings
on IRA contributions that were returned to you, see Contributions Returned Before Due Date of Return in Pub. 590. If you made a
contribution or distribution while the IRA held the returned contribution, see Pub. 590.
If you made a contribution for 2005 and you had it returned to you in 2006 as described above, do not report the distribution
on your 2006 tax
return. Instead, report it on your 2005 original or amended return in the manner described above.
Example. On May 31, 2006, you contributed $4,000 to your traditional IRA. The value of the IRA was $18,000 prior to the contribution.
On
December 29, 2006, when you are age 57 and the value of the IRA is $23,600, you realize you cannot make the entire contribution
because your taxable
compensation for the year will be only $3,000. You decide to have $1,000 of the contribution returned to you and withdraw
$1,076 from your IRA ($1,000
contribution plus $76 earnings). You did not make any other withdrawals or contributions. You are not required to file Form
8606. You deduct the
$3,000 remaining contribution on Form 1040. You include $1,076 on Form 1040, line 15a, and $76 on line 15b. You attach a statement
to your tax return
explaining the distribution. Because you properly removed the excess contribution with the related earnings by the due date
of your tax return, you
are not subject to the additional 6% tax on excess contributions. However, because you were under age 59½ at the time of the
distribution, the $76 of earnings is subject to the additional 10% tax on early distributions. You include $7.60 on Form 1040,
line 60.
Return of Excess Traditional IRA Contributions
The return (distribution) in 2006 of excess traditional IRA contributions for years prior to 2006 is not taxable if all three
of the following
apply.
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The distribution was made after the due date, including extensions, of your tax return for the year for which the contribution
was made (if
the distribution was made earlier, see Return of IRA Contributions on
this page).
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The total contributions (excluding rollovers and conversions) to your traditional and SEP IRAs for the year for which the
excess
contribution was made did not exceed:
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$4,000 ($4,500 if age 50 or older at the end of the year) for 2005,
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$3,000 ($3,500 if age 50 or older at the end of the year) for years after 2001 and before 2005,
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$2,000 for years after 1996 and before 2002, or
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$2,250 for years before 1997.
If your total IRA contributions for the year included employer contributions to a SEP IRA, increase the $4,000 ($4,500, if
applicable), $3,000
($3,500, if applicable), $2,000, or $2,250 by the smaller of the employer contributions or $42,000 ($41,000 for 2004, $40,000
for 2003 and 2002,
$35,000 for 2001, or $30,000 for years before 2001).
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No deduction was allowable (without regard to the modified AGI limitation) or taken for the excess contributions.
Include the total amount distributed on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a; and attach a
statement to your return
explaining the distribution. See the example below.
If you meet these conditions and are otherwise required to file Form 8606:
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Do not take into account the amount of the withdrawn contributions in figuring line 2, and
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Do not include the amount of the withdrawn contributions on line 7.
Example.
You are single, you retired in 2003, and you had no taxable compensation after 2003. However, you made traditional
IRA contributions (that you did
not deduct) of $3,000 in 2004 and $4,000 in 2005. In November 2006, a tax practitioner informed you that you had made excess
contributions for those
years because you had no taxable compensation. You withdrew the $7,000 and filed amended returns for 2004 and 2005 reflecting
the additional 6% tax on
excess contributions on Form 5329. You include the $7,000 distribution on your 2006 Form 1040, line 15a, enter -0- on line
15b, and attach a statement
to your return explaining the distribution, including the fact that you filed amended returns for 2004 and 2005 and paid the
additional 6% tax on the
excess contributions for those years. The statement indicates that the distribution is not taxable because (a) it was made
after the due dates of your
2004 and 2005 tax returns, including extensions, (b) your total IRA contributions did not exceed $3,000 ($3,500 if age 50
or older at the end of 2004)
for 2004 or $4,000 ($4,500 if age 50 or older at the end of 2005) for 2005, and (c) you did not take a deduction for the contributions,
and no
deduction was allowable because you did not have any taxable compensation for those years. The statement also indicates that
the distribution reduced
your excess contributions to -0-, as reflected on your 2006 Form 5329 and it indicates your adjusted basis in nondeductible
contributions.
After you file your return, you can change a nondeductible contribution to a traditional IRA to a deductible contribution
or vice versa. You also
may be able to make a recharacterization (see page 3). If necessary, complete a new Form 8606 showing the revised information
and file it with Form
1040X, Amended U.S. Individual Income Tax Return.
If you are required to file Form 8606 to report a nondeductible contribution to a traditional IRA for 2006, but do not do
so, you must pay a $50
penalty, unless you can show reasonable cause.
If you overstate your nondeductible contributions, you must pay a $100 penalty, unless you can show reasonable cause.
What Records Must I Keep?
To verify the nontaxable part of distributions from your IRAs, including Roth IRAs, keep a copy of the following forms and
records until all
distributions are made.
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Page 1 of Forms 1040 (or Forms 1040A, 1040NR, or 1040-T) filed for each year you made a nondeductible contribution to a traditional
IRA.
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Forms 8606 and any supporting statements, attachments, and worksheets for all applicable years.
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Forms 5498 or similar statements you received each year showing contributions you made to a traditional IRA or Roth IRA.
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Forms 5498 or similar statements you received showing the value of your traditional IRAs for each year you received a
distribution.
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Forms 1099-R or W-2P you received for each year you received a distribution.
Note.
Forms 1040-T and W-2P are forms that were used in prior years.
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