Incorrect non-deductible IRA contribution submitted

[AdamBATL]

When preparing our joint 2023 tax return in TT, I indicated that each of my wife and I made non-deductible IRA contributions of $7500 each for 2023, thus increasing our basis.  Unfortunately, I just discovered that her contribution never went through, and the return was already e-Filed.

Do I have to do anything to correct this, or does she just make her non-deductible $8000 2024 contribution now and only enter $500 for the contribution amount in next year's tax return, thus correcting the basis?

Thanks.

[DMarkM1]

Yes.  Assuming the non-deductible 7500 contribution was captured/reported on the 2023 form 8606 she can make non-deductible contributions in 2024 and report on the 2024 return the amount over the already reported 2023 amount to show the correct basis.      

[AdamBATL]

Thanks for the quick and helpful answer.

[dmertz]

If an incorrect 2023 Form 8606 was filed (which is what appears to have happened) the incorrect form must be amended.  I'll assume that the reported contributions were nondeductible due to MAGI and participation in a workplace retirement plan, otherwise there is also the possibility of an inappropriate Retirement Savings Contributions Credit having been reported on Form 8880.

When beginning your 2024 tax return with TurboTax, you'll want to begin by transferring in from the tax file that contains the amended Form 8606 so that the IRA Information Worksheet in 2024 TurboTax shows the correct basis is carried in from 2023.

Whatever contributions you and your wife make for 2024 are entirely independent of what was or was not contributed for 2023.  Trying to fudge the numbers by entering a smaller 2024 contribution than actually made and not amending the incorrect Form 8606 will cause discrepancies between what is reported on the tax returns and what is reported to the IRS by the IRA custodian on Forms 5498, potentially raising a red flag with the IRS.

[AdamBATL]

Well, now I'm stumped because this contradicts the last response.  Thanks for giving me your input.  I guess my next move will be to ask the IRS.

For the record, you are correct:  The reported contributions were nondeductible due to MAGI and participation in a workplace retirement plan.  Form 8606 indicated it as such.  It just turned out that the contribution for my wife was never processed, and it is now too late to make a 2023 contribution.  Assuming that the answer from the IRS is that I must amend it, is there a way to do that in TT?  If I can't re-efile, do I just mail in the amended form to them?  To where?

Thanks

[dmertz]

The 2023/2024 tax results are the same either way.  However, the law requires that nondeductible contributions be reported, so reporting on the 2024 tax return only $500 of an actual $8,000 nondeductible contribution for 2024 would technically be a violation of section 408(o)(4)  of the tax code.  It's your choice.

[AdamBATL]

Thanks for the follow-up.  Any thoughts on how to correct this in TT?

[dmertz]

If you choose to amend, the following page describes how to do so in TurboTax.  The change would be to remove the entry of the 2023 IRA contribution that was not actually accomplished.

https://ttlc.intuit.com/turbotax-support/en-us/help-article/tax-return/amend-change-correct-return-a...

[fanfare]

It costs you two pieces of paper to fix this with 1040-X.

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The proper way to file Form 8606 is attached to Form 1040-X.
Form 8606 can be mailed by itself only when you are otherwise not required to file a tax return.

Do you have the correct taxable amount on Form 1040 Line 4b and did not take a deduction? (Schedule 1 Line 20)?
If that is all true then only Form 8606 has to be attached.
After you e-File,
get Form 1040-X from IRS website and mail it in with your 8606, which you can also get in fillable PDF.
Note: when you are not changing any dollar amounts on your amending 1040-X, you can leave all the lines 1-23 EMPTY.

Do not include your old 1040 nor your revised 1040 because the Form 1040-X reflects any changes there and becomes your new tax return.

Part III explanation: "submit corrected Form 8606 with  Line 1 of -0-".
You will have to mail it so this does not use up your one 1040-X e-File.
Done this way, you sign 1040-X, not 8606

@AdamBATL 

[dmertz]

In fact, fanfare's suggestion to just file manually makes even more sense since removing the IRA contribution entry will likely just cause the Form 8606 to disappear within TurboTax rather then preparing a Form 8606 showing $0 on line 1 as the correction, so you would have to prepare the Form 8606 outside of TurboTax anyway.  The only benefit of amending within TurboTax would be to provide the correct basis carry-forward on TurboTax's IRA Information Worksheet and to have an accurate 2023 taxfile for recordkeeping.  Absent that, instead you could just correct the carried-forward basis in 2024 TurboTax after amending on paper.

[AdamBATL]

Thanks.  And yes, Form 1040 Line 4b is zero because both of our contributions were nondeductible (though it turns out that she didn't contribute)

[AdamBATL]

Thanks.  I actually started with the instructions to file an amended return through TT before I saw FanFare's advice.  FWIW, you are correct that it merely removed my wife's Form 8606 from the return.  The PDF shows what is essentially my complete tax return with the addition of form 1040X, and the subtraction of her copy of Form 8606.

FanFare's advice was to leave lines 1-23 blank, since there are no changes to the amounts.  TT doesn't do that.  It fills in all the old values with a Net Change column value of 0 for every line.  Filing (or e-Filing, which TT offers to do for free) would include all of these forms (and exclude the amended Form 8606).  That sounds like both of you are saying that I should instead fill out both of these forms manually instead, so I can submit the amended Form 8606 for my wife.  Even if I do this manually, next year's return through TT can just start with this amended file - so good to go through this exercise anyway.

Either of you can answer this:  Fanfare, I am not criticizing your advice when you say that I can leave lines 1-23 blank on form 1040-X, but I don't see anywhere on the form that says that I can do that if I am not changing any of the amounts.  Why do you think that is so?  Would there be a problem with printing and signing just the 1040-X from TT (as currently filled out) and then preparing a new Form 8606 downloaded from the IRS site, and mailing just those two forms to the IRS?

Thanks again for the great advice.

[dmertz]

I prefer filling in lines 1 through 23 the way TurboTax does so as to be explicit that there is no change to the rest of the tax return.  It can't hurt.

[AdamBATL]

Thanks a bunch.  Then I will print out the form 1040-X from TT, sign it, and attach it to the manually filled out form 8660 for my wife, with 0 for the contribution amount, and last-year's basis on the pertinent lines and mail them.