The main purpose of IRS Form 8606 is to report various nondeductible contributions that you make to Individual Retirement Arrangements (IRAs). You could report withdrawals from traditional IRAs if you have made nondeductible IRA distributions. You could also report your withdrawals from Simple Employee Pension (SEP) plans, in which employers also contribute to traditional IRAS or from Savings Incentive Match PLan for Employees (SIMPLE), in which both employers and employees contribute to traditional IRAs.
You could use IRS Form 8606 for reporting withdrawals from Roth IRAs or conversions to Roth IRAs from traditional IRAs, SEP plans, or SIMPLE IRAs. Normally, you should complete IRS Form 8606 and submit it along with other forms such as IRS Form 1040, IRS Form 1040NR, or IRS Form 1040A, while you present your tax returns to Internal Revenue Service (IRS) of the United States.
Procedures for Submission of IRS Form 8606
- You should file IRS Form 8606 only if you have made any nondeductible contributions to any specific traditional IRA or converted traditional IRA, SEP, or SIMPLE to a Roth IRA. You could also present IRS Form 8606 if you have taken income from a Roth IRA, except re-characterization, rollover, or return of any contributions. You are also eligible to furnish IRS Form 8606 if you have received income from any type of the above retirement plans and the tax basis of your income tax account or the amount of tax contributions that you have made in any traditional IRA is greater than zero.
- You should gather the necessary records such as 1099 that show your receipts from the custodians of IRA and records of contributions by you.
- You should fill out your personal information in the top portion of the form. If you are filing a joint return with your spouse, you should use the name and the social security number of that person whose information is reported in the form. If both of you are filing , you should use separate forms.
- After completing Part I of IRS Form 8606, you should add up all your nondeductible contributions to IRA for the previous year up to April 15 of the succeeding year and enter the total in Line 1. You should add your tax information in Line 2 and follow the necessary directions given for Line 3, Line 4, and Line 5. Line 6 would contain the added value of all your SIMPLE and SEP IRAs at the end of the year, along with any outstanding rollovers. Line 7 would contain the result of your distributions from your traditional IRAs, SIMPLE IRAs, and SEP IRAs. Line 8 would consist of the amounts you have converted from one or more of these three IRAs, unless you have re-characterized any of them during the reporting year. After this, you should follow the specific instructions provided in IRS Form 8606 for Line 9 to Line 15. This would determine your total tax basis in your traditional IRAs.
- You should subsequently complete Part II, only if you have converted your traditional IRAs, SEP accounts, or SIMPLE IRAs in part or in full.
- If you have taken any distribution from any Roth IRA account, you should complete Part III of IRS Form 8606. Roth IRA allows you to withdraw up to $10,000 from the growth in that account if you qualify as a first-time home purchaser and this withdrawal is penalty-free.
- Finally, you should date your form at the bottom of page 2 and affix your signature.
When all the above procedures are complete, you could send IRS Form 8606 to the relevant IRA office for necessary action.