Is there an easy way to find out which traditional IRA contributions my husband and I made in past years were tax-deductible? I can’t find evidence that we took any deductions for contributions, but my husband thinks we did in some years (our record keeping leaves a lot to be desired). I don’t want to get into trouble, but I don’t want to pay double taxes, either.
What you really need to track down are your nondeductible contributions, which will make a difference in your tax bill when you withdraw money or convert the traditional IRA to a Roth. All of your IRA distributions (and an entire Roth conversion) will be taxed unless you can show that you had made nondeductible contributions.
If any of the money in your IRAs had been rolled over from a 401(k) or other work-based retirement account, those contributions were likely pretax (unless your employer was one of the few that let you make after-tax contributions).
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If you made any nondeductible contributions to your IRA, then you should have filed Form 8606 with your tax return for the year of the contribution. Each 8606 you file shows your cumulative nondeductible contributions, which is your tax basis in the IRA. If you don’t have that paperwork, then you’ll need to do some detective work.
Your IRA administrator doesn’t keep records showing whether your contributions to a traditional IRA were tax-deductible. However, the administrator can provide copies of Form 5498, which reports the amount of each contribution and whether it was for a traditional or a Roth IRA, says Ken Hevert, of Fidelity. You can then compare that information with your tax records to see whether you had taken a deduction in those years.
If you don’t have your old income-tax returns, you can order them from the IRS for $57 each using Form 4506.
After you solve the mystery, you will also need to submit Form 8606 to the IRS reporting the nondeductible contributions. You’re generally supposed to pay a $50 penalty if you didn’t file Form 8606 when you made the contributions, unless you can prove that the failure was due to reasonable cause.
If you didn’t file the required forms, Rande Spiegelman, vice-president of financial planning for Charles Schwab, recommends contacting the IRS, explaining your situation and asking about the best procedure. “I would file a separate Form 8606 for each year in which I failed to do so, then I’d just wait to see whether the IRS decides to assess a $50 penalty for each year,” he says. “If there was reasonable cause for not filing prior forms, you can always request an abatement of penalties.” You can find Form 8606 for prior years on the IRS Web site.
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