Not exact matches
If I an correct, in traditional IRA, the basis, as in 8606, is the
portion of the balance due to
nondeductible contribution.
If you exceed the income limits, you can still make the maximum annual contribution, but a
portion or all of it will be considered a
nondeductible contribution.
Only the
portion that represents
nondeductible, after - tax contributions (if any) is not subject to income tax.
These work somewhat like
nondeductible IRA contributions: they permit tax - deferred buildup of investment earnings, and they create basis in the account so that the
portion of your subsequent withdrawals representing these after - tax dollars will not be taxed again.
Form 8606: The form is generated by the system automatically to report the
nondeductible IRA
portion calculated if the contributions reported were within the legal maximum for that that year, but limited otherwise, due to income, etc..
Note that withdrawals from deductible and
nondeductible traditional IRAs are subject to ordinary income taxes and if withdrawn prior to age 59 1/2 may be subject to an additional 10 percent federal income tax penalty (for
nondeductible traditional IRAs, only the
portion of the withdrawal attributable to earnings is taxable).