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Level 2
posted Oct 17, 2021 12:48:35 PM

How to claim contribution to Traditional IRA account is non-taxable?

Hello everyone: 

I listed information below for reference purpose:

  • Residental state: Texas
  • Year 2020 Tax Filing status: Married file jointly
  • Year 2020 AGI: $139,428
  • Turbox Tax showed effective tax rate as: 10.10%
  • My contribution to Traditional IRA Account (Vanguard): $4,900
  • Nondeductible traditional IRA contributions from worksheet: $4,900 (data from IRA Contribution Worksheet)

 

  1. What document(s) I need to file with IRS to notify them that my traditional IRA contribution in year 2020 is after-tax dollar contribution, so they don't tax my again when I withdraw the funds during my retirement years.
  2. What process I need to go through (such as filing paperwork with IRS or hiring an accountant to do the work for me) in order to claim $4900 is non-taxable with IRA?
  3. Should I convert $4900 contribution into a Roth IRA account since it is non-taxable?
  4. If the conversation process is very complicated then I may choose to leave the money in the Traditional IRA account
  5. Please advise what action shall I take to avoid this situation in the future (e.g. make contribution go to a ROTH IRA account instead of going to a traditional IRA account)?

0 2 719
1 Best answer
Level 15
Oct 17, 2021 4:45:32 PM

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.

2 Replies
Level 15
Oct 17, 2021 3:21:50 PM

Form 8606 is used to report your non deductible and deductible contributions. Read a complete discussion here. 

https://www.google.com/amp/s/turbotax.intuit.com/tax-tips/investments-and-taxes/what-is-irs-form-8606-nondeductible-iras/amp/L7iVxrgTs

 

Whether to contribute to a traditional or Roth IRA depends on many factors such as your expected tax bracket when you retire. Since your contributions now have no tax advantage, a Roth might be a good choice. Since you are a Vanguard client you might want to discuss this with your client representative. 

Level 15
Oct 17, 2021 4:45:32 PM

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.