3699 / What IRS filing requirements does an individual retirement plan participant have to meet?

However, an individual does need to file Form 5329 with their tax return if there is any tax due because of an early (premature) distribution ( Q 3677), excess contribution ( Q 3669), or excess accumulation ( Q 3682).¹

Moreover, a separate form also is required when nondeductible contributions are made to an IRA (see below).

Nondeductible Contributions

If an individual makes a nondeductible contribution to a traditional IRA for any year, the individual must report the following on Form 8606:

(1)   The amount of the nondeductible contributions for the taxable year

(2)   The amount of distributions from individual retirement plans for the taxable year

(3)   The excess of the aggregate amount of nondeductible contributions for all preceding years over the aggregate amount of distributions that were excludable from income for such taxable years

(4)   The aggregate balance of all individual retirement plans as of the close of the year in which the taxable year begins

(5)   The amount of a traditional IRA that is converted into and recharacterized as a Roth IRA, or the amount in the same Roth IRA that is then converted back into and recharacterized as a traditional IRA (prior to 2018, the Roth recharacterization rules were generally eliminated for tax years beginning after 2017)

(6)   Any other information as prescribed by the Secretary of the Treasury.²

Failure to file Form 8606 will result in a $50 penalty per failure unless it is shown that the failure was due to reasonable cause.³ In one case, a failure to file a Form 8606 resulted in the taxpayer’s inability to appropriately document his basis in his nondeductible IRA; contributions were taxed a second time on distribution ( Q 3671).⁴ Overstatement of a nondeductible contribution is subject to a penalty tax of $100 per occurrence.⁵