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What happens if, during retirement, you miss filing form 8606 one year?

Form 8606 is used to track non-deductible contributions to an IRA. In retirement those contributions can't be taken out all at once, you must take them out each year in proportion to the entire IRA's value. The basis leftover from one year is passed to the next. It's a PITA form, and if you're retired 20 years you'll have to fill it out 20 times.

What if you've missed filing this form one year? How is that gap handled?

The IRS instructions are at https://www.irs.gov/forms-pubs/about-form-8606 and are of little help.

  • Did you make a contribution for the year of no form? – JoeTaxpayer Jun 8 at 16:27
  • Did you pay taxes on the entire distribution or did you subtract off the part of the basis that shouldn’t have been taxed? If the latter, how did you compute the non taxable part without filling out Form 8606? – Dilip Sarwate Jun 8 at 21:59
  • The specific situation is for a family member, a couple. Form 8606 was filled each year in retirement, but one (and only one) of their form 8606's was simply omitted, and only for one person. So yes, taxes were paid on the entire distribution that year (the distribution was an RMD). The question relates to how to recover, or if it's necessary to recover from this situation. – Bryce Jun 11 at 19:28
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Suppose that you have a basis (contributions for which you did not take a deduction) in your Traditional IRA, and reported these contributions on Form 8606 in the years that you made them (and so the IRS is aware of the basis). In retirement, you are no longer making contributions to the IRA but taking distributions from them. As I understand the matter, the IRS position is that you cannot withdraw the basis first (which is a tax-free withdrawal) and only start taking taxable distributions after the basis has been exhausted; a distribution must be tax-free basis in part and taxable in part where the basis part can be no more than the proportionate amount of the distribution.

(Parenthetical remarks) For the record, in the 1970s, my pension plan had mandatory contributions from post-tax income, and upon retirement, the pension consisted of entirely of the tax-free basis for the first few years, and became taxable income only after the basis had been distributed. In the late 1970s, the contributions were changed to be from pre-tax income and in the early 1980s, the withdrawal rules became like the IRA rules. Thus, by the time I retired a few years ago, my pension plan consisted mostly of pre-tax contributions and tax-deferred earnings on contributions and a small amount of post-tax contributions. Thus, my pension is mostly taxable income and includes only a small amount of tax-free return of the basis.

(Return to main theme) If the basis is $B as of the beginning of 2018, you took a distribution of $D during 2018 and the value of your IRA at the end of 2018 is $R, then (assuming no rollovers or conversions to Roth IRAs etc during 2018), the amount $D x (B/(B+R)) (on Line 12 of Form 8606) is how much is the nontaxable part of the distribution and the amount $D - $D x (B/(B+R)) = $D x (R/(B+R)) is the taxable part (Line 15c). Also, your basis for future years is $B - $D x (B/(B+R)), your previous basis $B less what part of the basis was taken out during 2018 and is computed on Line 14 of Form 8606. These numbers are computed on Form 8606 which the OP does not want to fill out. The instructions on Form 8606 tell us that the amount on Line 15c is to be entered on Line 4b of Form 1040. If one chooses not to complete Form 8606 and simply enters $D on Line 4a and Line 4b as well, one ends up paying income tax on what would have been the nontaxable portion of the distribution. The IRS doesn't care. The rules say that no more than $D x (B/(B+R)) of that $D distribution can be claimed as a withdrawal of tax-free basis; one can always claim less including $0. If you choose to not file Form 8606, you are choosing to pay more tax than you might otherwise need to pay, and a grateful nation thanks you for your patriotic generosity.

So what about future years? Well, the basis is unchanged if no Form 8606 was filed in 2018. Can one resume filing Form 8606 for 2019 for later years? And if so, what should be the basis be when the next Form 8606 is filed? The basis is the same as that reported Line 14 on the last 8606 filed.


The IRS instructions for Form 8606 (cited by the OP) state that there is a $50 penalty for not filing a Form 8606 to report a nondeductible contribution to an IRA, but not for failing to file a Form 8606 in retirement years when no contributions have been made but distributions have been taken. It is worth noting that the instructions also state that in order to verify the claims of basis, one must keep copies of Page 1 of Form 1040 as well as of all Forms 8606 as well as Forms 5498 until the basis has been reduced to zero. Note that separate Forms 8606 are required for Inherited IRAs and one's own IRA.

  • Yes, this is why form 8606 is a Pain. I suspect the right answer is " patriotic generosity". There's no requirement to take a deduction one is eligible for, so the mistake is in the favor of the nation. However my question remains unanswered: how do I account for this in future years? Or is better to amend all the returns back to the mistake year? – Bryce Jun 11 at 16:16
  • The $50 fee is for failing to file form 8606 at contribution time, it's silent on form 8606 at withdrawal time. The complexity of non-deductible contributions to the IRA hit after it's too late to change course! – Bryce Jun 11 at 16:18
  • @Bryce. See revised answer for my take on how to handle the matter in future years (if you want to). Keep in mind that returns can only be amended going back three years. – Dilip Sarwate Jun 12 at 4:44

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