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General information about Form 8606 in ProSeries

SOLVEDby IntuitUpdated 1 week ago

Form 8606 is used to report nondeductible contributions to traditional IRAs and to report distributions from traditional IRA with a basis and distributions from Roth IRAs.

Because married persons filing jointly must use separate Forms 8606, ProSeries provides a Form 8606 for both the taxpayer and spouse.

If Form 8606 is attached to Form 1040, a signature and address are not required. If your client is not required to file Form 1040, file Form 8606 as you would Form 1040. Be sure to include the client's address and signature.

Part I of Form 8606 is used to report any nondeductible traditional IRA contributions and compute the basis in the traditional IRA. It is also used to compute the taxable portion of any traditional, SEP, or SIMPLE IRA distribution if the traditional IRA has a basis.

  • If your client converted all of their traditional IRAs to Roth IRAs and did not receive any traditional, SEP, or SIMPLE IRA distributions that were not converted, Part I of Form 8606 does not need to be completed.

Part II of this form is used to compute the taxable amount of a conversion of a traditional IRA to a Roth IRA.

Part III of Form 8606 is used to compute the taxable amount of any distributions the person received from a Roth IRA

If your client's traditional IRAs have a basis and he or she received a distribution from them, and your client also made a contribution to a traditional IRA which may be nondeductible because of coverage by an employer retirement plan, a special worksheet must be used to compute the taxable amount of the distribution. This is necessary because of a cyclic condition where:

  1. The amount of the traditional IRA contribution which is deductible depends on the adjusted gross income.
  2. The adjusted gross income depends on the taxable portion of the traditional IRA distribution.
  3. The taxable portion of the traditional IRA distribution depends on the amount of the traditional IRA contribution which is deductible.

This calculation is done beginning on the Taxable IRA Distributions Worksheet (accessible from the QuickZoom field at the bottom of Part I of Form 8606) according to the instructions provided in IRS Publication 590-B. This worksheet first calculates the taxable portion of the traditional IRA distribution assuming that all of the traditional IRA contribution is nondeductible. This taxable amount is then used to compute an interim adjusted gross income.

This interim AGI is used on the applicable IRA worksheet (IRA Deduction Worksheet or Social Security Recipients Who Contribute to a Traditional IRA Worksheet) to compute the amount of the traditional IRA contribution that is actually nondeductible. This AGI amount may not agree with the AGI from Form 1040.

The nondeductible traditional IRA contribution is entered on line 1 of Form 8606 and lines 2 through 5 are completed. Then, the amount on line 5 of Form 8606 (basis before current distribution) is compared with line 11 (nontaxable part of the distribution) of the Taxable IRA Distributions Worksheet.

If line 5 of Form 8606 is not less than line 11 of the worksheet, the amount from line 11 of the worksheet is entered on line 13 of Form 8606 and the amount from line 13 of the worksheet is entered on line 15 of Form 8606.

If line 5 of Form 8606 is less than line 11 of the worksheet, then lines 6 through 15 of Form 8606 are completed to compute the actual nontaxable portion of the traditional IRA distribution. In this case, the taxable amount of the traditional IRA distribution included on line 4b of Form 1040 will be different from the taxable portion of the distribution calculated on the worksheet.

In both cases, the amount from line 15 of Form 8606 is included on line 4b of Form 1040.

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