Line 6 of Form 8606

[2018azres]

I started receiving distributions from my IRAs in 2020.  I am 67 so RMDs aren't an issue right now.  Since I made nondeductible contributions to my IRA in the early 2000s I need to figure the non-taxable and taxable portions of my IRA Distributions.  I reported these nondeductible contributions correctly on form 8606 way back then so I have all the information I need, no problem.  The only dilemma I have is how to fill out Line 6 of form 8606 for 2020. I have Form 5498 for my traditional IRA and it's value is clear.  I also have an IRA annuity that has annuitized and is a fixed income guaranteed lifetime income annuity (it started paying me in 2020).  I used a lump sum from my other IRA to purchase it in 2014. It will never pay me more than my current monthly payments except for an annual 2% inflation adjustment. Do I include the annuitized IRA value on line 6 of Form 8606 in addition to my traditional IRA? And what value do I use?  The amount I paid for it?  The Fair Market Value has no bearing on what I'll be paid for the rest of my life, although the insurance company from which I purchased it says they will send a Form 5498 to the IRS for 2020.

[gloriah5200]

Your return will use Form 8606 to use the total value of IRAs at the beginning and end of the year and to allocate the distributions and contributions for 2020 to a portion of the "nondeductible IRA Basis" of the account. 

You will need to enter the information on Form 8606 in your return to match the 8606 from prior years to do the calculations.

LIne 6 of the Form 8606 says:

Enter the value of all your traditional, SEP, and SIMPLE IRAs as of December 31, 2020, plus any outstanding rollovers.  .There are some additional items to be included in this calculation that are not common.  Please refer to the line-by-line instructions for Form 8606 at the following link

Please refer to the Instructions for Form 8606 for additional questions at the following link:

IRS Instructions for Form 8606

It is designed so that the nondeductible IRA Basis from prior years is assigned to the balance of traditional IRAs for this and current years.

The annuitized IRA may be coded so that it will not be included in these calculations, depending on its 1099R details.

For additional information, please refer to IRS Publication 590-B:

IRS Publication 590-B, Distributions

[Edited 02/25/2021|12:54 PM PST]

[dmertz]

The IRS has never provided guidance on how to reflect on Form 8606 line 6 the value of an IRA annuity that is in payout status, so people have taken a variety of approaches such as not including it at all or including a value determined in the same way as an annuity might be valued for estate-tax purposes.

[2018azres]

Thanks to both you and gloriah5200 for your replies.  You both illustrate that the answer to my question is not clear cut.  I agree that the IRS does not give definitive guidance on how to include an IRA annuity's value on line 6 of Form 8606.  Since the insurance company that holds the annuitized IRA annuity sent me a letter giving me it's FMV, then I will end up adding that amount to the value of my traditional IRA to enter on line 6.  It seems strange that I'll use their inflated value on Form 8606, but then eventually not  use it's value at all when it comes time to figure my RMDs.  But RMDs are 5 years away, so I'll cross that bridge then. Thanks again for your input.

[dmertz]

The industry consensus is that the IRA annuity payout is considered to be the RMD for the IRA annuity and all RMD.  But yes, they way that the calculate the payout and the way that calculate the FMV may be different.

Since they have provided a FMV of the annuity, yes, you need to include that amount on line 6 of Form 8606.  My previous reply assumed that they had provided no FMV.  It IRS has recently added to Form 5498 boxes 15a and 15b to indicate the value of certain types of IRA investments and code G in box 15b can be used to indicate an asset that does not have a readily available FMV, which might include an annuity.

[2018azres]

Good info on Form 5498. Thanks for the additional feedback.