Has anybody seen a blank Form 8606?
Not a “sample” Form 8606 from the appendix of one of those tax preparation manuals. I’ve already got one of those. I’m trying to avoid scratching out the “John Doe” entry so I can write down my own name and numbers.
Near as I can tell, nobody I know, personally or by reputation, has ever seen a virgin Form 8606. The banks and post offices don’t stock them and even the IRS warehouse in Bloomington, Ill., stiffed me this year. Which is strange, because the way I interpret IRS instructions, anyone who makes a non-deductible contribution to their Individual Retirement Account is supposed to submit a Form 8606 with their Form 1040.
Most financial advisers do recommend you make these non-deductible IRA contributions–up to $2,000 a year–if you can afford it. Even if you make too much to qualify for a deductible IRA, they say, you can still benefit by deferring taxation on your investment earnings. And as we all know, you can’t earn too much for retirement. That’s why retirement planning has replaced baseball as the national pastime.
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So you’d figure (wouldn’t you?) that by this time of year millions of middle- and upper-middle income Americans would be obtaining and filling in these mysterious Form 8606s. You’d figure they’d be almost as common as Schedules A and B. But they’re not.
Why? My guess is people are turned off at the bait-and-switch way Congress has suckered working people when it comes to retirement saving. And, that our disillusionment is about to get worse. Let me explain.
It all started in the late ’70s with a realization among Baby Boomers that Social Security won’t be enough to live on during retirement. Some gloomy economists even predicted the system will collapse early in the 21st Century, after we Boomers retire and our working children refuse to pay the taxes necessary to keep the program afloat. (Note: This still may come to pass.)
So starting in 1982, Congress authorized the IRA, giving workers a chance to save for their own retirement by squirreling away $2,000 a year for individuals and $2,500 for couples (apparently under the theory that, in retirement, two can live as cheaply as one.) No income tax would be due on the principal or earnings until retirees began drawing down on their accounts after age 59 1/2.
But Congress didn’t leave well-enough alone. It was decided in 1986 that the Treasury couldn’t afford so widespread a tax break, so Congress phased out deductibility for singles earning above $35,000 and couples earning above $50,000. Not surprisingly, there was a huge falloff in the number of people contributing to IRAs. Why bother when you could still get a deduction by saving through an employer-sponsored 401(k) plan, or even the same IRA-like earnings deferral by buying an insurance annuity?
Besides, with these methods you didn’t have to find and file the elusive Form 8606.
Now we’re 15 years closer to the Social Security Armageddon and Congress still is coming up with various and sundry personal retirement plans. But does anybody trust Washington not to change the rules?
This year we’re being offered the so-called Roth IRA, immodestly named for the Republican senator from Delaware who thought it up.
(Let me be the first to predict that the practice of naming tax-advantaged retirement vehicles after politicians will soon get out of hand. By the time Boomers retire, their nest eggs will be hopelessly carved up into Roth, Gramm, Kennedy, Moynihan, Archer and Armey Accounts, each with their own deposit and withdrawal protocols. The IRS instruction booklet will read like the Capitol phone book.)
At any rate, the Roth IRA begins to restore some of the original IRA largess by making tax-free, as opposed to tax-deferred, the investment earnings your account manages to accrue. There are a zillion other Roth rules but that’s the gist of it. Later this year we’ll find out whether the IRS will require a Form 8606 of everyone who decides to take the Roth plunge. And, if they do, whether they’ll actually stock the damned things.
Also new this year is something called the Education IRA. This lets you sock away (ha, ha) $500-a-year toward your child’s college education. Unfortunately your contributions are non-deductible, though there’s no tax on earnings when applied toward college expenses. Fact is, this tax break is so chintzy that no politician volunteered to put his or her name on it. It is not known, as yet, whether a Form 8606 will be required. I certainly hope so. The more people asking for it, the more they’ll have to print.
Coming soon, in addition, will be the “Voluntary Investment Account” a version of which was recently proposed by Sen. Daniel Patrick Moynihan, the Democrat from New York. No doubt the Republicans will have their own versions, but under Moynihan’s you’d be allowed to divert 15 percent of your Social Security payroll tax (or roughly a penny of every dollar you earn) into a personal savings account.
Unfortunately, his plan also requires that future Social Security cost-of-living increases be scaled back by a full percent; and that the age of retirement be raised, gradually, to 70.
Me, I’m not going to live that long. Not if they keep changing these retirement plans. And not if every year I’ve got to find a Form 8606.