Tax Answers

March 23, 1994

Here is an answer from members of the Maryland Association of Certified Public Accountants to a reader's tax question. The Sun will publish answers through April 15.

Q: I started a nondeductible IRA last year. I put $1,200 in it and I redeemed it and now I'm being told that this money is all taxable. I never deducted my contributions. How can it be taxable? Is any part taxable? Is there any penalty?

A: The answer to your question depends in part on whether you had other IRA accounts besides the nondeductible $1,200. Start with Form 8606, which you should have filed with your 1992 tax return to report your total IRA account balances (basis). This will tell you the taxable amount of your 1993 redemption. If this was your only IRA account, you will not have to pay income tax or penalty for early withdrawal on the $1,200. You will, however, pay income tax on any amount you received over the $1,200 unless you were at least 59 1/2 or became disabled in 1993.

If you had other IRA funds that were deductible, you must combine all IRA funds and allocate between deductible and nondeductible to determine any amount subject to income tax and the 10 percent early withdrawal penalty. Publication 590 shows you how to make this calculation. Form 8606, and possibly Form 5329, should be included with your return.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary. Consult with a tax adviser for specific advice.

Readers may submit questions by phone, mail or fax. Selected questions will be answered in The Sun and The Evening Sun.

To ask a tax question by phone, call Sundial, The Sun's telephone information service, at (410) 783-1800. In Anne Arundel County call 268-7736, in Harford County 836-5028, and in Carroll County 848-0338. Using a touch-tone phone, enter 6120 after you hear the greeting.

Written queries may be sent to TAX QUESTIONS, The Baltimore Sun, Business News Department, 501 N. Calvert St., Baltimore 21278. Fax questions to the Business News Department at (410) 783-2517. Callers are encouraged but not required, to leave their names and phone numbers should questions need to be clarified. Names will not be published. Questions will not be answered by phone.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.