Nondeductible IRA Contributions
DEAR TRUST OFFICER:
I’ve made a nondeductible contribution to my IRA this year. Are there any special worries for this contribution? — CAREFUL SAVER
DEAR CAREFUL:
You’ve put after-tax dollars into this IRA, so you must take steps to be certain that you don’t pay income tax on these dollars again when you take distributions. The burden of proof for this is on the taxpayer.
The way to establish the tax basis of the IRA with nondeductible contributions is to file Form 8606 with your tax return for the year in which the contribution is made. This puts the data into the hands of the IRS. It’s the same Form that is used to alert the IRS to distributions from Roth IRAs, which are potentially tax free.
You must save copies of all of the Forms 8606 that you file during your working years. You should also keep copies of year-end account statements and contribution confirmation documents. You may want to keep a running total of your after-tax contributions. We suggest keeping both digital and physical copies of all this information.
You should share this information with your spouse and your financial advisors, and let them know where you keep your financial records.
Do you have a question concerning wealth management or trusts? Send your inquiry to contact us.
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