Timing of filing a form 8606

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  • #5005
    Bruce1950
    Participant

    Just when you think you’ve got a good bead on IRA rules….

    Got into a discussion with a fellow planner, who mentioned that he advises individuals to file the year’s 8606 after they have made a non-deductible contribution to their TIRA, and not wait until they file their return. He recommends this because the 8606 is an independent form, meaning it is signed and dated separately from one’s tax return thus can be filed at a different time. The instructions for the 8606 merely say file with tax return NLT tax filing deadline plus extensions….which is what I’ve always gone on. But I cannot see a reason not to file it separately…and if the max non-deductible contribution has been already made, I can’t think of a reason not to file it, if for no other reason then to ensure their IRA is up to date should they die or become mentally disabled before filing their return.

    Can you think of a reason not to file it when the non-deducted TIRA contribution is made?

    Thanks

    BruceM

    #5009
    Alan S.
    Participant

    Hard to say without knowing the IRS’ match up procedures. I have always suspected that it is not functional, and I cannot recall anyone reporting that the IRS’ challenged the basis amount shown on Form 8606 whether filed with the return or many years thereafter. That is odd, considering that so many taxpayers fail to file the form at all when they make a ND contribution or may not pick up the correct amount from line 14 of the prior 8606. The IRS also does not seem to inquire about TIRA contributions that are neither deducted or reported as non deductible.

    If an 8606 is filed prior to the return, it is not clear what happens if an 8606 is required for another reason with the return, eg a distribution, conversion or Roth distribution. Will the IRS attempt to match up the pre filed 8606 with the return and retain both forms or will they treat the form filed with the return as the correct one?

    Therefore, there may be unintended consequences for pre filing, and that in turn depends on whether the IRS will ever apply scrutiny to IRA basis issues and divert from the current honor system be used for IRA basis.

    With the Secure Act provisions likely to be enacted tomorrow for 2020 and beyond, more taxpayers will be filing 8606 since the back door Roth will be available without age limit as long as there is earned income to support ND contributions.

    Finally, I have never heard of anyone filing the form to report current year activity prior to the return itself, so it remains to be seen if doing so is a benefit or a problem. Probably neither if the IRS remains on the honor system when it comes to TIRA basis.

    #5019
    Kaye Thomas
    Moderator

    More simply, the reason not to do this is that you are acting contrary to IRS instructions. They tell you to file it with the return unless you aren’t required to file a return for that year, and if you aren’t required to file a return, they tell you to file at the same time and place you would file Form 1040, which means after the end of the year. It’s unwise to act contrary to IRS instructions without a strong reason for doing so.

    #5029
    Bruce1950
    Participant

    Alan and Kaye

    Thanks much for the replies. Much as I thought.
    And I’ve always thought of the IRS as a drill instructor in Marine Corp basic training. The last thing the new recruit wants to do is stand out and be different!

    BruceM

    #5031
    Alan S.
    Participant

    On a related matter, the IRS instructions indicate that when after tax amounts from a qualified plan are rolled into a TIRA, the 8606 should not be filed until the first year it would OTHERWISE have to be filed. This is stated in Pub 590A (Non deductible contributions), not in the 8606 Inst. While not stated, this would also be the case for IRA basis received in a transfer incident to divorce.

    For many taxpayers, this means they have to recall for several years that the next time they would otherwise file the 8606, they should add this basis amount on line 2. Given that the IRS receives and accepts so many very late 8606 forms, you would think they would not want to increase that problem. Regardless, for those who are not highly organized when it comes to filing taxes, I have advised to file the 8606 reporting this basis with the current tax return.

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