Taxpayers whose income exceeds certain limits and are covered by another retirement plan they may not be able to take a tax deduction for the contribution. The advantage of making these contributions is that the earnings may grow on a tax deferred basis.

 

These “non-deductible” contributions may later be received as tax free distributions. When distributions are made from the taxpayer’s IRA, an amount equal to the ratio of non deductible contributions to the balance of all IRA accounts multiplied by the distribution is non taxable.

 

If you make non-deductible contributions to an IRA, the IRS requires you to keep copies of the first page of your 1040, copies of form 8606 as well as supporting documents for each year you make a non-deductible contribution if you wish to receive a portion of the future distribution tax free.

 

Your accountant is not required to maintain these records and in most cases will not. Most accounting firms will maintain copies for 3 years.    

 

 

Charles R. Wold, CPA/PFS