Traditional IRA tax

Forum|Forum|7 years ago
April 4, 2019
1 reply
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Greetings,

I funded a Vanguard IRA in 2018 with after tax money (from savings) not realizing that I made too much money to take the $6500 deduction. In December of 2018 (I was 59 1/2 then) I took a distribution for the full amount and closed the account. My question is why am I getting taxed on this distribution on my tax return even though I funded the IRA with after tax money? Is there a way around this?

Thank you!

Best answer by macuser_22

Assuming that you took a normal distribution and not a return of contribution and have a code 1 or 7 in box 7 on the 1099-R then,

Be sure that the non-deductible Traditional IRA contribution was entered in the IRA contribution section and a 8606 form added to the tax return with the contribution on line 1.

As long as you had no other Traditional IRA, SEP IRA or SIMPLE IRA account existing as of Dec, 31 2018, then the 8606 line 1 amount should offset the distribution tax on the line 6-15 continuations. If there was a gain and earnings, then the earnings that are more then the contribution will be taxable income.

Enter IRA contributions here:
Federal Taxes,
Deductions & Credits,
I’ll choose what I work on (if that screen comes up),
Retirement & Investments,
Traditional & Roth IRA contribution.

OR Use the "Tools" menu (if online version under My Account) and then "Search Topics" for "ira contributions" which will take you to the same place.

macuser_22Answer

Employee

Assuming that you took a normal distribution and not a return of contribution and have a code 1 or 7 in box 7 on the 1099-R then,

Be sure that the non-deductible Traditional IRA contribution was entered in the IRA contribution section and a 8606 form added to the tax return with the contribution on line 1.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**