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!
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: |
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: |