Page 84 - 2020 Publication 17

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Worksheet 9-1. Figuring Your Modified AGI 14:38 - 19-Jan-2021
Keep for Your Records
Use this worksheet to figure your modified adjusted gross income for traditional IRA purposes.

1. Enter your adjusted gross income (AGI) from Form 1040 or 1040-SR, line 11, figured without taking into
account the amount from Schedule 1 (Form 1040), line 19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Enter any student loan interest deduction from Schedule 1 (Form 1040), line 20 . . . . . . . . . . . . . . . . . . . . 2.
3. Enter any foreign earned income and/or housing exclusion from Form 2555, line 45 . . . . . . . . . . . . . . . . . 3.
4. Enter any foreign housing deduction from Form 2555, line 50 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Enter any excludable savings bond interest from Form 8815, line 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Enter any excluded employer-provided adoption benefits from Form 8839, line 28 . . . . . . . . . . . . . . . . . . 6.
7. Enter any tuition and fees deduction from Schedule 1 (Form 1040), line 21 . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Add lines 1 through 7. This is your modified AGI for traditional IRA purposes . . . . . . . . . . . . . . . . . . . . . . 8.

Both contributions for 2020 and distribu- nondeductible contribution by reporting it on Inherited IRAs
tions in 2020. If all three of the following apply, Form 8606, as explained next.
any IRA distributions you received in 2020 may Form 8606. To designate contributions as If you inherit a traditional IRA, you are called a
be partly tax free and partly taxable. nondeductible, you must file Form 8606. beneficiary. A beneficiary can be any person or
• You received distributions in 2020 from You don't have to designate a contribution entity the owner chooses to receive the benefits
one or more traditional IRAs. as nondeductible until you file your tax return. of the IRA after he or she dies. Beneficiaries of
• You made contributions to a traditional IRA When you file, you can even designate other- a traditional IRA must include in their gross in-
come any taxable distributions they receive.
for 2020. wise deductible contributions as nondeductible.
You must file Form 8606 to report nonde-
• Some of those contributions may be non- ductible contributions even if you don't have to Inherited from spouse. If you inherit a tradi-
deductible contributions. file a tax return for the year. tional IRA from your spouse, you generally have
the following three choices. You can do one of
If this is your situation, you must figure the taxa- the following.
ble part of the traditional IRA distribution before A Form 8606 isn't used for the year that
you can figure your modified AGI. To do this, ! you make a rollover from a qualified re- 1. Treat it as your own IRA by designating
you can use Worksheet 1-1 in Pub. 590-B. CAUTION tirement plan to a traditional IRA and yourself as the account owner.
If at least one of the above doesn't apply, the rollover includes nontaxable amounts. In 2. Treat it as your own by rolling it over into
figure your modified AGI using Worksheet 9-1. those situations, a Form 8606 is completed for your IRA, or to the extent it is taxable, into
the year you take a distribution from that IRA.
How to figure your reduced IRA deduction. See Form 8606 under Distributions Fully or a:
You can figure your reduced IRA deduction for Partly Taxable, later. a. Qualified employer plan,
Form 1040 or 1040-SR by using the worksheets
in chapter 1 of Pub. 590-A. Also, the Instruc- Failure to report nondeductible contribu- b. Qualified employee annuity plan (sec-
tions for Forms 1040 and 1040-SR include simi- tions. If you don't report nondeductible contri- tion 403(a) plan),
lar worksheets that you may be able to use in- butions, all of the contributions to your tradi- c. Tax-sheltered annuity plan (section
stead. tional IRA will be treated as deductible 403(b) plan), or
contributions when withdrawn. All distributions d. Deferred compensation plan of a
Reporting Deductible from your IRA will be taxed unless you can state or local government (section
Contributions show, with satisfactory evidence, that nonde- 457 plan).
ductible contributions were made.
When filing Form 1040 or 1040-SR, enter your 3. Treat yourself as the beneficiary rather
IRA deduction on Schedule 1 (Form 1040), Penalty for overstatement. If you over- than treating the IRA as your own.
line 19. state the amount of nondeductible contributions Treating it as your own. You will be con-
on your Form 8606 for any tax year, you must sidered to have chosen to treat the IRA as your
Nondeductible pay a penalty of $100 for each overstatement, own if:
unless it was due to reasonable cause.
Contributions • Contributions (including rollover contribu-
Penalty for failure to file Form 8606. You tions) are made to the inherited IRA, or
Although your deduction for IRA contributions will have to pay a $50 penalty if you don't file a
may be reduced or eliminated, contributions required Form 8606, unless you can prove that • You don't take the required minimum distri-
can be made to your IRA up to the general limit the failure was due to reasonable cause. bution for a year as a beneficiary of the
or, if it applies, the Kay Bailey Hutchison IRA.
Spousal IRA limit. The difference between your You will only be considered to have chosen to
total permitted contributions and your IRA de- Tax on earnings on nondeductible contri- treat the IRA as your own if:
duction, if any, is your nondeductible contribu- butions. As long as contributions are within • You are the sole beneficiary of the IRA,
tion. the contribution limits, none of the earnings or
gains on contributions (deductible or nondeduc- and
Example. Mike is 30 years old and single. tible) will be taxed until they are distributed. See • You have an unlimited right to withdraw
In 2020, he was covered by a retirement plan at When Can You Withdraw or Use IRA Assets, amounts from it.
work. His salary was $67,000. His modified AGI later. However, if you receive a distribution from
was $80,000. Mike made a $6,000 IRA contri- Cost basis. You will have a cost basis in your your deceased spouse's IRA, you can roll that
bution for 2020. Because he was covered by a traditional IRA if you made any nondeductible distribution over into your own IRA within the
retirement plan and his modified AGI was over contributions. Your cost basis is the sum of the 60-day time limit, as long as the distribution isn't
$74,000, he can't deduct his $6,000 IRA contri- nondeductible contributions to your IRA minus a required distribution, even if you aren't the
bution. He must designate this contribution as a any withdrawals or distributions of nondeducti- sole beneficiary of your deceased spouse's
ble contributions. IRA.
Page 80 Chapter 9 Individual Retirement Arrangements (IRAs)