Re: IRA excess contribution

<made a $4K contribution to an IRA and found out he couldn't deduct it>

Although the amount deposited, might not be deductible, it is still a
legitimate IRA contribution AND NOT an excess contribution subject to any
penalties. The person should do nothing except file Form 8606 with his
2007
tax return. Properly filled out the Form will then show the
non-deductible
Contribution being made. He should retain a copy of the form for future
reference.

But when he takes distribution from IRA after retirement, he will
have to pay taxes on the entire distribution. That means he will pay
taxes on the amount that was already taxed. Therefore $4k contribution
is being taxed twice. Am I wrong?

Yes, you're wrong. When he eventually takes a distribution he again uses an
8606 to calculate how much of the distribution is taxable. By the time the
entire IRA is distributed, he (or his heirs) will have received that $4K
back tax free.
--
Don in Upstate NY


.

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