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  1. If someone is qualified to contribute the full amount($6,000) to Roth IRA, they are not required to file form 8606.Is that right?
  2. If yes to above question(meaning not required to file 8606), how will IRS know that you are complying with rules?

For example: I open two Roth IRA accounts with two custodians(Fidelity and Vanguard) and contribute total of $12,000 and I don't file form 8606. What will happen?

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  • Form 8606 is for some quite different thing. If you don’t file 8606, you’ll simply lose money. But ishas nothing to do with what you’re asking.
    – Aganju
    Oct 22, 2022 at 23:37
  • @Aganju If a person who is qualified to make $6,000 to Roth IRA and contributes the same, still need to file form 8606 and failing to do so will result in losing money? Is that what you are saying?
    – javanoob
    Oct 23, 2022 at 1:53
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    No, I'm saying 8606 has not much to do with Roth IRAs. It is used to track post-tax contributions to pre-tax accounts (non-Roth IRAs), to avoid double taxation on them. Contributions to Roth IRAs are always post-tax, and 8606 has nothing to do with them.
    – Aganju
    Oct 24, 2022 at 2:27

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If you contribute more than $6K to your IRA through two different custodians, the IRS will catch up with you -- not immediately after you file your income tax return -- when it processes the Forms 5498 (due May 31? June 30?) that each custodian sends to the IRS (with copy to you). So, if you contributed more than $6K to different custodians for 2021, say, then you should expect to hear from the IRS about now, or maybe later.

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    And by "hear" you should expect a demand for 6% excise tax per year for the excess contribution, until it is withdrawn.
    – littleadv
    Oct 22, 2022 at 8:06
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How will IRS know that you are complying with rules?

IRA custodians provide the IRS with Form 5498 which will indicate how much you contributed. You'd be expected to file Form 5329 if you contributed more than you were allowed to.

Form 8606 is for reporting non-deductible contributions or determining taxable amount from conversions/distributions.

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If you made an excess contribution to Roth IRAs which you did not withdraw by the tax filing deadline, then you are required to fill out Form 5329 Part 4, computing the penalty, when you file your tax return. (And continue to fill it out in future years until the excess is withdrawn or absorbed into a future year's contribution limit.) Form 8606 is not involved unless there is a withdrawal. So it's not the IRS's responsibility to "know" -- it's your responsibility to proactively report and pay the penalty on your tax return.

If you fail to file Form 5329 and fail to add the penalty to your taxes, then your tax return is incorrect. As other answers have mentioned, the IRS receives Form 5498 from the IRA custodian so they can easily find out that your tax return is incorrect. But in general, this belongs to the category of questions of "if I file my tax return incorrectly, how will the IRS know?" For example, if you are married, but you file as Single filing status, since you do not have to provide evidence that you are single, how will the IRS enforce it? Well, they might or might not find out quickly. But if and when they do find out, even if years down the line, you will be in big trouble, and be looking at potential back taxes and penalties with interest.

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  • In this case there's a specific reporting requirement to be matched and a specific excise tax to be assessed. So it's not the same as a fraudulent tax return using incorrect marital status. For excess IRA contributions, I doubt the IRS would even try to go for criminal fraud since the excise tax is an extremely expensive penalty already and the tax in the original year was not underpaid.
    – littleadv
    Oct 24, 2022 at 3:54

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