Non-Deductible IRA Contributions on Form 8606 - Income Limits for Traditional IRA

You've hit what many people call the "IRA deduction cliff" - it sneaks up on a lot of folks! Let me help clarify. You're right that your non-deductible basis starts at $0 if you've fully deducted previous contributions. For this year, your non-deductible amount would be your contribution minus the $450 deductible portion. And yes, you'll need to file Form 8606 every year you make non-deductible contributions to track your basis. The purpose of Form 8606 is to prevent double taxation. Since you've already paid tax on the non-deductible portion (by not getting to deduct it), you shouldn't be taxed again when you withdraw that money in retirement. The form helps establish your "basis" so only the earnings get taxed later. As for whether to continue with traditional vs switching to Roth - at your income level, many financial advisors would suggest prioritizing Roth contributions since you're getting limited benefit from traditional deductions. The Roth grows tax-free and withdrawals in retirement are completely tax-free (both contributions and earnings). For quick targeted advice, you might try scheduling a consultation with a fee-only financial planner who charges by the hour. Many offer 30-60 minute consultations specifically for questions like yours.

I was in almost the exact same situation last year! After trying to figure out all the IRA deduction rules and Form 8606 stuff myself, I ended up using https://taxr.ai and it was seriously a lifesaver. Their system analyzed my previous tax returns, identified that I hadn't been tracking my non-deductible contributions properly, and helped me understand exactly what needed to be done. They explained how the income phaseout works and showed me the calculations for my specific situation. I was able to see exactly how much I could deduct and what needed to be reported on Form 8606. The cool thing was they also projected different scenarios - sticking with traditional IRA with non-deductible contributions versus switching to Roth.

Just wanted to follow up - I decided to try https://taxr.ai after posting my skeptical question. I'm genuinely impressed with how helpful it was for my IRA situation. The service clearly explained the "pro-rata rule" that applies when you have a mix of deductible and non-deductible contributions in traditional IRAs, which I had no idea about. They showed me how tracking my non-deductible basis with Form 8606 would affect my taxes when I eventually withdraw the money. Based on my income trajectory, they recommended I switch to backdoor Roth contributions going forward. Really helpful to see all the calculations laid out with explanations in plain English!

If you're finding it hard to get answers from the IRS about Form 8606 or IRA deduction rules, you're not alone. I spent WEEKS trying to get through to someone at the IRS last year with similar questions. Finally found https://claimyr.com and used their service to get connected to an actual IRS agent in about 20 minutes instead of waiting on hold for hours. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with walked me through exactly how Form 8606 works and confirmed my understanding of the non-deductible contribution tracking. They also explained some nuances about the income phaseout calculations that none of the online articles mentioned. Definitely worth it if you need official answers straight from the IRS.

Have to admit I was dead wrong about Claimyr. After posting my skeptical comment, I decided to try it since I had a complicated question about Form 8606 and backdoor Roth conversions that I'd been trying to get answered for weeks. The service actually got me through to an IRS agent in about 15 minutes! I was honestly shocked. The agent confirmed that I'd been filling out Form 8606 incorrectly for the past two years and walked me through how to fix it. Would've taken me days of redialing on my own. For anyone dealing with these non-deductible IRA contribution issues, being able to speak directly with the IRS and get clear guidance was invaluable. Definitely saved me from potential audit headaches down the road.

Not sure if this helps, but the non-deductible traditional IRA contributions can still make sense in certain cases. If your income is too high for direct Roth contributions, you might be able to do what's called a "backdoor Roth" where you make non-deductible traditional IRA contributions and then immediately convert to Roth. The key is having no other pre-tax IRA money (including SEP, SIMPLE or rollover IRAs) to avoid the pro-rata rule. If you do have other pre-tax IRA money, you'd be taxed proportionally on any conversion. This is definitely where Form 8606 becomes critical, as it tracks your non-deductible basis. Worth looking into if you're above the Roth IRA income limits!

Quick question about Form 8606 - I've been doing non-deductible IRA contributions for 3 years but just learned I was supposed to be filing this form. Can I file it retroactively for previous years? Will I get penalized for not filing it before?