"I made non-deductible IRA contributions for 2003-2005 and 1993 and 1994 and failed to file Form 8606. (Total 5) I never deducted the contributions on my tax return. If I submit Form 8606 now for each of those years, will that satisfy the IRS without incurring a penalty? I am 66 years old and have never taken a distribution. Also do I need to submit an amended 1040?"Rose, you came to the right place to ask this tax question! I researched this last year, and here's what the IRS told me:
"Although Form 8606 is normally submitted with a timely filed Form 1040, the IRS will process a late-filed Form 8606 - even one that is filed after the normal three-year statute of limitations for claiming a refund has expired. The Form 8606 can be submitted without a Form 1040 or Form 1040X...."
You should file Form 8606 to report your basis in a non-deductible individual retirement account. File one Form 8606 for each year that you made non-deductible contributions. This will establish your basis in the IRA. You would then be eligible either to convert your non-deductible IRAs into Roth IRAs, or you could begin taking distributions from the non-deductible IRAs. You should work with a tax professional to help you figure out if converting to a Roth would make financial sense for you.
The penalty for filing Form 8606 late is $50. However, the IRS sometimes waives this penalty if you can show reasonable cause for why the forms are filed late.
You have additional options for your IRA contributions for 2003 through 2005. You can treat those as deductible or non-deductible. To claim the deduction, you would need to file an amended tax return using Form 1040X. You can only do this within 3 years from the original filing deadline. So if you wanted to claim an IRA deduction for tax year 2003, you will need to file that amendment by April 17, 2007. (This is the last day to claim a tax refund for the 2003 tax year.) You can read all the interesting details about what to do if your need to file Form 8606 late in my previous article, Forgot to Claim IRA Deduction.