When you take money out of your individual retirement account (IRA), the Internal Revenue Service wants to know about it. Even if your entire distribution is tax-free, you must still report it when you file your income taxes. Figuring the taxable portion of a traditional IRA distribution requires you to know the amount of nondeductible contributions in the account. Qualified withdrawals, which are taken after age 59 1/2 years old, do not incur an additional income tax penalty.
Complete Form 8606 to figure the taxable portion of your IRA withdrawal of you are taking an early Roth IRA distribution or any distribution from a traditional IRA containing nondeductible distributions. Form 8606 must be included when you file your taxes. If you take any deduction from a traditional IRA not containing nondeductible contributions, the entire amount is taxable. If you take a qualified distribution from a Roth IRA, the entire amount is nontaxable.
Report the nontaxable portion portion of your IRA distribution on line 15a of Form 1040, or line 11a of Form 1040A. Even though it does not affect your taxes, the IRS requires you report it.
Report the taxable portion on line 15b of Form 1040 or line 11b of Form 1040A. This amount is included in your taxable income.
Complete Form 5329 if you took a nonqualified distribution from either a traditional IRA or a Roth IRA, and your distribution contained a taxable portion to figure the early withdrawal penalty. Attach the Form 5329 to your tax return and report the early withdrawal penalty on line 58 of Form 1040. You cannot use Form 1040A if you owe an early withdrawal penalty.
Report the amount of your distribution withheld for federal income taxes on line 61 of Form 1040 or line 38 of Form 1040A. This amount is subtracted from your tax liability because you have already paid it.
Items you will need
- IRS Form 8606
- IRS Form 5329
- IRS Form 1040A or 1040
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