Where can I declare that the contribution I made to a traditional IRA was bought with already taxed money?

Question

If I added to my Traditional Ira with after taxed money should I be able to deduct the contribution and do I have to file any special forms to declare that the contribution was purchased with after-tax money.

Answer 1

Whether the Traditional IRA contribution is from "pre-tax" or "after-tax" money is determined by whether you deduct the contribution when you file your tax return.

If you are eligible to deduct your Traditional IRA contribution (let's say it was $6000), and you deduct it on your Form 1040 Schedule 1, then $6000 is deducted from your income (so your income is $6000 less than it would otherwise have been). This effectively means that the $6000 of money you contributed was "pre-tax" because you paid tax on $6000 less of income that year, so if you consider that was the same $6000 of income you contributed, then that $6000 was not taxed.

You may have had taxes withheld from your paycheck, but withheld tax is not the final amount of tax you pay -- it is adjusted when you file your tax return, and if you had too much withheld, you get a refund of the difference; if you had too little withheld, you pay the difference; so the amount of taxes withheld doesn't matter -- only the final amount of taxes calculated on your tax return matters, and it's how you calculate your taxes on your tax return that determines whether your contribution was pre-tax or post-tax.

If you do not deduct your Traditional IRA contribution (either because you were not eligible to or you chose not to), then your contribution comes from after-tax money, because your taxable income is not reduced by it. You will have to file Form 8606 Part I to document this non-deductible Traditional IRA contribution, and when you withdraw that money from Traditional IRA or convert it to Roth IRA, you will not need to pay tax on the portion of the withdrawal or conversion that is attributed to the after-tax contribution.

Answer 2

For tax year 2019, the IRA Deduction is handled on Schedule 1 (Line 19). The instructions are included in the Form 1040 instructions and discuss the eligibility requirements.