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Any money you contribute to a traditional IRA that you do not deduct on your tax return is a nondeductible contribution. You still must report these contributions on your return, and you use Form 8606 to do so.
Even if you dont qualify for deductible IRA contributions, you can still make contributions to the account. Any growth in your account will still be tax deferred, meaning the account still provides some shelter from taxes throughout your working years.
You must file Form 8606 for every year when you contribute after-tax amounts (nondeductible contributions) to your traditional IRA. Conversions from traditional, SEP, or SIMPLE IRAs also must be reported on Form 8606.
The Tax Reform Act of 1986 allows you to make nondeductible contributions to your IRA. You may wish to do this, for example, if all or part of your contributions are no longer deductible because of the new income limitations for IRAs. Name (if married, file a separate Form 8606 for each spouse.
If you made non-deductible contributions, then any distribution contains both a taxable and a nontaxable portion. The nontaxable portion is based on your cumulative after-tax contributions, and the taxable portion is based on the money those contributions earned over time.
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At a minimum, taxpayers who fail or forget to file Form 8606 should expect to receive an inquiry from the IRS, asking them to explain and verify their nondeductible contributions. Avoiding such an inquiry or an audit is a good reason to file the form.
The IRS gets a little grumpy if you contribute to a Roth IRA without what it calls earned income. That usually means that you need a paying jobworking for either someone else or your own businessto make Roth IRA contributions.

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