If you have an Individual Retirement Account (IRA) and forgot to claim a tax deduction for the contributions, you have two routes to fix this oversight. First, you can amend your tax returns so that you will be able to take your IRA deduction. You will essentially be getting a bigger refund if you take this route. Or, second, you could file a form with the Internal Revenue Service (IRS) to declare your IRA contributions as non-deductible contributions to your IRA and then you will need to convert that money to a Roth IRA. You will get tax benefits from either route.
Things You'll Need
- IRS Form to amend tax returns
- IRS Form 8606
- IRA contribution receipts
- Stamped envelope
Contact your accountant or if you did your own taxes, go to the IRS website to download a form to do the first option of amending your tax return. This option is if you have and want to keep a deductible IRA, and want a tax deduction now. You will receive a supplement refund check to reflect your IRA deduction you are now claiming. You can file amended tax returns for the prior four years. That is, you only have four years from the year you did not take the IRA deduction to file the amended tax return for a bigger refund. If you wait longer than four years, the IRS has no statutory obligation to send you a refund check and you will not receive a bigger refund.
Locate and compile all IRA contribution receipts you have made for this past year. Make a copy of each receipt so that you can send it to the IRS proving you made the contributions. This proof will support your claim of a tax deduction.
Fill out the amended tax return form--or have your accountant do it. Attach all IRA contribution receipts you have made for the past year to the form.
Review the amended tax return form and then sign at the bottom of the form and date it. Make a copy of the amended tax return form for yourself. Then put the original amended tax return form and all IRA contribution receipts in a stamped envelope and send to the IRS.
Download from the IRS website Form 8606 if you want to do the second option of declaring your IRA contributions as non-deductible contributions. This option will be for Roth IRAs and will allow you to have tax-free withdrawals. If you have a deductible IRA and you want to switch to this option, you can do that. You will need to contact whoever is running your IRA, whether it be an investment broker or a bank, and request conversion of your traditional IRA to a Roth IRA.
Fill out Form 8606 completely and review the information. Once you have reviewed, sign and date the form. Make a copy of the form and send to the IRS. Make sure your tax returns are not over three years old. Otherwise, the IRS will not send you a refund and you will receive no tax benefit for your IRA contributions. Note that if your tax returns are more than three years old, you will still need to file the Form 8606 with the IRS because you need to have these contributions become non-deductible. After you have filed this form with the IRS, you can contact your investment broker or bank administering the IRA and change it to a tax-free Roth IRA.