For 2021, I made an excessive traditional IRA contribution of $7,000. No IRA deduction was taken on the 2021 return. Discovered in 2025 that the contribution was excessive, and made a corrective distribution, removing the contribution from the IRA. I am now preparing amended 2021 and following year returns with Form 5349 to report the 6% excise tax (penalty). I understand how to do that.
My question is about Form 8606, IRA Basis. A Form 8606 was not included with my original 2021 return for some reason, perhaps a misunderstanding or error on my part. Now, I would appreciate help in understanding how to handle the $7,000 excessive 2021 contribution amount (no IRA deduction was taken or is allowed to be taken for that) over time, so that it is properly tracked on my Forms 8606 for 2021, 2022, 2023, 2024 and, ultimately, 2025, the year the the $7,000 excess contribution was correctively distributed to me.
1. Should I include a 2021 Form 8606 with my 2021 amended return, since I omitted its inclusion originally?
2. If so, should that 2021 Form 8606 include the $7,000 excessive IRA contribution amount, since it was in the IRA during the 2021 taxable year, and not deducted on the 2021 return, even though it was discovered to be excessive and returned to me years later in 2025?
I have read that IRA basis doesn't include excessive contributions, which should be corrected ... ok, but how does the Form 8606 reporting work for interim years before the contribution is discovered to be excessive and a corrective distribution back to me is made?
Much appreciation for any insight. @DanaB27 -- your responses are so helpful to this community, tagging you in case you can reply.
