@nblandfo wrote:
Thanks for the reply.
This is a rollover IRA which I initially funded from account with my previous employer to consolidate.
Ok, so let's talk some basic concepts.
If you make deductible contributions to an IRA, you get a deduction now and you pay tax later.
If you make a Roth IRA contribution now, you don't get a tax deduction now and you don't pay tax later.
These two strategies kind of wash out, if you contribute properly. For example, you can contribute $100 to a traditional IRA or $70 to a Roth IRA, and have the same amount of money left over after taxes. That $70 will grow less over time, but you pay no tax when withdrawing; the IRS grows more but you pay tax when you withdraw.
Making non-deductible contributions to a traditional IRA, instead of making non-deductible contributions to a Roth IRA, makes a mess of everything. It means you now have a partial basis in your IRA, and your withdrawals will be partially non-taxable. (For example, if 10% of IRA contributions are non-deductible, then 10% of future withdrawals are non-taxable.) But it rarely makes sense to make non-deductible contributions to a traditional IRA when you could have contributed to a Roth IRA, if you really want to make non-deductible contributions.
(There are some potential advantages to having Roth IRA money, or a mix of traditional and Roth IRA money, when you retire. Too complicated to get into now. But if you want non-taxable retirement money, you really should be contributing to a Roth IRA and not making non-deductible contributions to a traditional IRA.)
But, we're stuck with what we have so far.
For the present situation:
For 2018, if you made non-deductible contributions, it is too late to file an amended return to change them to deductible and get a refund. You will need to file form 8606 to list and track your non-deductible contributions.
For 2019 and 2020, it would be better long-term to make all your contributions deductible. I believe you can do this by an amended return since the contributions were made on time, you are just changing the treatment of the contribution. (I can't find an instruction to confirm this would be allowed or not allowed.) If you must leave the contributions as non-deductible, then you must file an amended return to file form 8606 for each year, to report and track your non-deductible contributions. You must prepare the returns in chronological order, because your 2019 form 8606 will require information from the 2018 form, and so on.
For the Future:
If you want to make non-deductible contributions, so you can withdraw money in the future tax-free, open a Roth IRA instead.
