IRA Distribution

[Michele]

I have a client who took $8400.00 this year in an IRA distribution. He is over 591/2 so I am not concerned about the penalty. My dilemma is that he never let me know in the past that he was contributing to an IRA, so he never took the IRA deduction in the past so has already paid tax on this amount.

How would you show this on the tax return? I don't want him to have to pay twice for the same money.

Thanks

Michele

[jasdlm]

You've probably already considered this, but this was money contributed recently, not money rolled over from an employer plan back in the dark ages or before you were doing his returns?

[Michele]

Unfortunately, I know that these are not recent contributions. Over the years they have been contributing to an IRA, but didn't let me know about it until they started withdrawing from it.

This is a regular IRA not a Roth, so the income is taxable, but they didn't get the benefit of the IRA deduction during the years they were contributing.

Any suggestions?

Michele

[BulldogTom]

I believe, but don't take my word for it, that it is an option to take the deduction or not on an IRA contribution. If not deductible, and 8606 should have been filed to show the non-deductible portion. I would guess that you could recreate the contributions over the years and treat them as non-deductible, and then treat the distribution this year under the normal rules for an IRA with basis.

This is off the top of my head and not researched. But I would look into it if it was my client.

Tom

Lodi, CA

[Lion EA]

I had a gal who had done their own taxes for many years and had made IRA contributions then, some non-deductible. I never knew; neither made any IRA contributions while I had them nor had any Forms 8606 in prior returns. When she started taking distributions and showed me her elaborate calculations for the non-taxable part, I was totally surprised. But, she'd traced her contributions over the years that they were made, just never filed Forms 8606. So, I force-fed a Form 8606 into their return that year to account for the percentages in past balances and took the current distribution with the percentage applied. So far no IRS letter, and that was 2-3 years ago.

[kcjenkins]

As long as the calculations match up with what actually happened, it should not generate a letter, I think. Because the IRS gets deposit info from the banks, brokerages, etc, which means that their data should match your 8606, so no conflict, no letter.