How Much Can I Deduct? Generally, you can deduct the lesser of the contributions to yourtraditional IRA for the year or the general limit (or spousal IRAlimit, if applicable). However, if you or your spouse werecovered by an employer retirement plan at any time during theyear for which contributions were made, you may not be able to deductall of the contributions. Your deduction may be reduced or eliminated,depending on the amount of your income and your filing status, asdiscussed later under Deduction Limits. Any limit on theamount you can deduct does not affect the amount that can becontributed. See Nondeductible Contributions, later. Are You Covered by an Employer Plan? The Form W-2 you receive from your employer has a box used toindicate whether you were covered for the year. The "Pension Plan"box should have a mark in it if you were covered. If you are not certain whether you were covered by your employer'sretirement plan, you should ask your employer. Employer plans.An employer retirement plan is one that an employer sets up for thebenefit of its employees. For purposes of the traditional IRAdeduction rules, an employer retirement plan is any of the followingplans. A qualified pension, profit-sharing, stock bonus, moneypurchase pension, etc., plan (including Keogh plans). A 401(k) plan (generally an arrangement included in aprofit-sharing or stock bonus plan that allows you to choose to eithertake part of your compensation from your employer in cash or have youremployer pay it into the plan). A union plan (a qualified stock bonus, pension, orprofit-sharing plan created by a collective bargaining agreement). A qualified annuity plan. A plan established for its employees by the United States, astate or political subdivision thereof, or by an agency orinstrumentality of any of the foregoing (other than an eligible statedeferred compensation plan (section 457(b) plan)). A tax-sheltered annuity plan for employees of public schoolsand certain tax-exempt organizations (403(b) plan). A simplified employee pension (SEP) plan. A 501(c)(18) trust (a certain type of tax-exempt trustcreated before June 25, 1959, that is funded only by employeecontributions) if you made deductible contributions during theyear. A SIMPLE plan. A qualified plan is one that meets the requirementsof the Internal Revenue Code. When Are You Covered? Special rules apply to determine whether you are considered coveredby a plan for a tax year. These rules differ depending on whether theplan is a defined contribution plan or a defined benefit plan. ERROR MSGDefined contribution plan.A defined contribution plan is a plan that provides for a separateaccount for each person covered by the plan. In a defined contributionplan, the amount to be contributed to each participant's account isspelled out in the plan. The level of benefits actually provided to aparticipant depends on the total amount contributed to thatparticipant's account and any earnings on those contributions. Typesof defined contribution plans include profit-sharing plans, stockbonus plans, and money purchase pension plans. Generally, you are considered covered by a defined contributionplan if amounts are contributed or allocated to your account for theplan year that ends within your tax year. Example.Company A has a money purchase pension plan. Its plan year is fromJuly 1 to June 30. The plan provides that contributions must beallocated as of June 30. Bob, an employee, leaves Company A onDecember 30, 1998. The contribution for the plan year ending on June30, 1999, is not made until February 15, 2000 (when Company A filesits corporate income tax return). In this case, Bob is consideredcovered by the plan for his 1999 tax year. No vested interest.If an amount is allocated to your account for a plan year, you arecovered by that plan even if you have no vested interest in (legalright to) the account. Defined benefit plan.A defined benefit plan is any plan that is not a definedcontribution plan. In a defined benefit plan, the level of benefits tobe provided to each participant is spelled out in the plan. The planadministrator figures the amount needed to provide those benefits andthose amounts are contributed to the plan. Defined benefit plansinclude pension plans and annuity plans. If you are eligible (meet minimum age and years of servicerequirements) to participate in your employer's defined benefit planfor the plan year that ends within your tax year, you are consideredcovered by the plan. This rule applies even if you declined to becovered by the plan, you did not make a required contribution, or youdid not perform the minimum service required to accrue a benefit forthe year. Example.Nick, an employee of Company B, is eligible for coverage underCompany B's defined benefit plan with a July 1 to June 30 plan year.Nick leaves Company B on December 30, 1998. Since Nick is eligible forcoverage under the plan for its year ending June 30, 1999, he isconsidered covered by the plan for his 1999 tax year. No vested interest.If you accrue a benefit for a plan year, you are covered by thatplan even if you have no vested interest in (legal right to) theaccrual. Judges.For purposes of figuring the IRA deduction, federal judges areconsidered covered by an employer retirement plan. When Are You Not Covered? You are not covered by an employer plan in the followingsituations. Social security or railroad retirement.Coverage under social security or railroad retirement (Tier I andTier II) does not count as coverage under an employer retirement plan. Benefits from previous employer's plan.If you receive retirement benefits from a previous employer's planand you are not covered under another employer plan, you are notconsidered covered by a plan. Reservists.If the only reason you participate in a plan is because you are amember of a reserve unit of the armed forces, you may not beconsidered covered by the plan. You are not considered covered by theplan if both of the following conditions are met. The plan you participate in is established for its employeesby: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. You did not serve more than 90 days on active duty duringthe year (not counting duty for training). Volunteer firefighters.If the only reason you participate in a plan is because you are avolunteer firefighter, you may not be considered covered by the plan.You are not considered covered by the plan if both of thefollowing conditions are met. The plan you participate in is established for its employeesby: The United States, A state or political subdivision of a state, or An instrumentality of either (a) or (b) above. Your accrued retirement benefits at the beginning of theyear will not provide more than $1,800 per year at retirement. Social Security Recipients Complete the worksheets in Appendix B of thispublication if, for the year, all of the following apply. You received social security benefits. You received taxable compensation. Contributions were made to your traditional IRA. You or your spouse was covered by an employer retirementplan. Use these worksheets to figure your IRA deduction and thetaxable portion, if any, of your social security benefits.Appendix B includes an example with filled-in worksheets toassist you. Deduction Limits As discussed under How Much Can I Deduct?, earlier, thededuction you can take for contributions made to your traditional IRAdepends on whether you or your spouse were covered for any part of theyear by an employer retirement plan. Your deduction is also affectedby how much income you had and by your filing status, as explainedlater under Reduced or no deduction. Full deduction.If neither you nor your spouse were covered for any part of theyear by an employer retirement plan, you can take a deduction for yourtotal contributions to one or more traditional IRAs of up to $2,000,or 100% of your compensation, whichever is less. This limit is reducedby any contributions made to a 501(c)(18) plan on your behalf. Spousal IRA.In the case of a married couple with unequal compensation who filea joint return, the deduction for contributions to the traditional IRAof the spouse with less compensation is limited to the smallerof the following two amounts: $2,000, or The total compensation includible in the gross income ofboth you and your spouse for the year reduced by the following twoamounts. Your spouse's IRA deduction for the year. Any contributions for the year to a Roth IRA on behalf ofyour spouse. This limit is reduced by any contributions to a section501(c)(18) plan on behalf of the spouse with less compensation. Reduced or no deduction.If either you or your spouse were covered by an employer retirementplan, you may be entitled to only a partial (reduced) deduction or nodeduction at all, depending on your income and your filing status.Your deduction begins to decrease (phase out) when your income risesabove a certain amount and is eliminated altogether when it reaches ahigher amount. The amounts vary depending on your filing status. SeeTable 1.1, earlier. To determine if your deduction is limited, you must determine yourmodified adjusted gross income (AGI) and your filing status, asexplained under Deduction Phaseout. Deduction Phaseout If you are covered by an employer retirement plan, your IRAdeduction is reduced or eliminated entirely depending on your filingstatus and modified AGI, as shown in Table A. Table A If your filing status is: Your IRA deductionis reduced if yourmodified AGIis between: Yourdeductionis eliminatedif yourmodified AGIis: Single, orHead of household $31,000 and $41,000 $41,000 or more Married--joint return, or Qualifying widow(er) $51,000 and $61,000 $61,000 or more Married--separate return $  0    and $10,000 $10,000 or more TaxTip: For 2000, if you are covered by a retirement plan at work, your IRAdeduction will not be reduced (phased out) unless your modified AGI isbetween: $32,000 (a $1,000 increase) and $42,000 for a singleindividual (or head of household), $52,000 (a $1,000 increase) and $62,000 for a married couple(or a qualifying widow(er)) filing a joint return, or $-0- (no increase) and $10,000 for a marriedindividual filing a separate return. If you are not covered by an employer retirement plan, but yourspouse is, your IRA deduction is reduced or eliminated entirelydepending on your filing status and modified AGI as shown in thefollowing Table B. Table B If your filing status is: Your IRA deductionis reduced if yourmodified AGIis between: Yourdeductionis eliminatedif yourmodified AGIis: Married--joint return $150,000 and $160,000 $160,000 or more Married--separate return $   0    and $ 10,000 $ 10,000 or more Filing status.Your filing status depends primarily on your marital status. Forthis purpose you need to know if your filing status is single or headof household, married filing jointly or qualifying widow(er), ormarried filing separately. If you need more information on filingstatus, see Publication 501, Exemptions, Standard Deduction, andFiling Information. Married filing separate exception.If you did not live with your spouse at any time during the yearand you file a separate return, you are not treated as married andyour filing status is considered, for this purpose, as single. Modified adjusted gross income (AGI).Bordeaux luxury hotelsHow you figure your modified AGI depends on whether you are filingForm 1040 or Form 1040A. Form 1040.If you file Form 1040, figure the amount on the page 1"adjusted gross income" line without taking into account any: IRA deduction, Student loan interest deduction, Foreign earned income exclusion, Foreign housing exclusion or deduction, Exclusion of qualified bond interest shown on Form 8815,or Exclusion of employer-paid adoption expenses shown on Form8839. This is your modified AGI. Form 1040A.If you file Form 1040A, figure the amount on the page 1"adjusted gross income" line without taking into account any: IRA deduction, Student loan interest deduction, Exclusion of qualified bond interest shown on Form 8815,or Exclusion of employer-paid adoption expenses shown on Form8839. This is your modified AGI. Caution: Do not assume that modified AGI is the same as your compensation.You will find that your modified AGI may include income in addition toyour taxable compensation such as interest, dividends, and income fromIRA distributions, discussed next. Income from IRA distributions.If you received distributions in 1999 from one or more traditionalIRAs and your traditional IRAs include only deductible contributions,the distributions are fully taxable. If you made contributions to a traditional IRA for 1999 that may benondeductible contributions (discussed later), depending on whetheryour IRA deduction for that year is reduced (see DeductionPhaseout, earlier), the distributions may be partly tax free andpartly taxable. In that case, you must figure the taxable part of thetraditional IRA distribution before you can figure your modified AGI.To do this, you can use the Worksheet To Figure Taxable Part ofDistribution, under Are Distributions Taxable?,later. Note.In 1999, you may have received taxable distributions from IRAsother than traditional IRAs as discussed in chapters 2,3, and 5. How To Figure Your Reduced IRA Deduction Pencil: If you are covered by an employer retirement plan and your modifiedAGI is within the phaseout range for your filing status (seeTable A under Deduction Phaseout, earlier), yourIRA deduction must be reduced. If you are not covered, but your spouseis, see Table B under Deduction Phaseout. You can figure your reduced IRA deduction for eitherForm 1040 or Form 1040A by using the Worksheet for ReducedIRA Deduction, that follows. Also, the instructions for thesetax forms include similar worksheets. Forms 1040 & 1040A segments Note.If you were married and either or both you and your spouse workedand you both contributed to IRAs, figure the deduction for each of youseparately. If you were divorced or legally separated (and did not remarry)before the end of the year, you cannot deduct any contributions toyour spouse's IRA. After a divorce or legal separation, you can deductthe contributions to your own IRA and your deductions are subject tothe rules for single individuals. Figuring deductible and nondeductible contributions to atraditional IRA (including a spousal IRA).Complete lines 1 through 8 to figure your deductible andnondeductible IRA contributions for the year. Worksheet for Reduced IRA Deduction (Use only if you or your spouse is covered by anemployer plan and your modified AGI is within the phaseout range thatapplies.) If you are covered andyour filing status is: And yourmodified AGIis over: Enter online 1below:  Single or Head of household $ 31,000 $ 41,000  Married-joint return or Qualifying widow(er) $ 51,000 $ 61,000  Married-separate return $  -0- $ 10,000 If your spouse is covered, but youare not, and your filing status is: And yourmodified AGIis over: Enter online 1below:  Married-joint return $150,000 $160,000  Married-separate return $-0- $ 10,000 1. hôtels CologneEnter the amount from above that applies            2. Enter your modified AGI (that ofboth spouses, if married filing jointly)            Note.If line 2 is equal to or more than the amount on line 1, STOPHERE. Contributions to your traditional IRA are not deductible.See Nondeductible Contributions, later. 3. Subtract line 2 from 1. If line 3 is$10,000 or more, STOP HERE. You can take a full IRA deductionfor contributions of up to $2,000 or 100% of your compensation,whichever is less.            4. Multiply line 3 by 20% (.20). If the resultis not a multiple of $10, round it to the next highest multiple of$10. (For example, $611.40 is rounded to $620.) However, if the resultis less than $200, enter $200            5. Enter your compensation. If you are filing a jointreturn and your compensation is less than your spouse's, include yourspouse's compensation reduced by his or her traditional IRAcontribution and contributions to Roth IRAs for this year. If you fileForm 1040, do not reduce your compensation by any losses fromself-employment.            6. Enter contributions made, or to be made, toyour traditional IRA for 1999, but do not enter more than$2,000. If contributions are more than $2,000, see ExcessContributions, later.            7. IRA deduction. Compare lines 4, 5,and 6. Enter the smallest amount (or a smaller amount if you choose)here and on the Form 1040 or 1040A line for your IRA, whicheverapplies. If line 6 is more than line 7 and you want to make anondeductible contribution, go to line 8.            8. Nondeductible contribution.Subtract line 7 from line 5 or 6, whichever is smaller. Enterthe result here and on line 1 of your Form 8606.            Reporting Deductible Contributions You do not have to itemize deductions to claim your deduction forIRA contributions. If you file Form 1040, deduct IRAcontributions for 1999 on line 23. If you file Form 1040A,deduct IRA contributions on line 15. Form 1040EZ does notprovide for IRA deductions. When you must use Form 1040.You must use Form 1040 if you owe tax on any early distributionsfrom your IRA, any excess contributions made to your IRA, or anyexcess accumulations in your IRA account. See What Acts Result inPenalties?, later. Note.If you made contributions to a section 501(c)(18) pension plan,include your deduction in the total on line 32, Form 1040. Enter theamount and "501(c)(18)" on the dotted line next to line 32. SeePublication 575 for information on deduction limits that apply tocontributions to these plans. Self-employed.If you are self-employed (a sole proprietor or partner) and have aSEP-IRA or a SIMPLE IRA, take your deduction for allowable plancontributions on line 29, Form 1040. Withholding allowances.To figure the number of additional withholding allowances on yourForm W-4, Employee's Withholding Allowance Certificate,you can take into account your estimated deductible IRA contributions.For this purpose, however, do not take into account any of youremployer's regular contributions to your SEP-IRA or SIMPLE IRA. Theygenerally are not included in your income and you cannot deduct them.SEP-IRAs and SIMPLE IRAs are discussed later in chapters 4and 5. Formore information on withholding, see Publication 505, TaxWithholding and Estimated Tax. Form 5498.You should receive by June 1, 2000, Form 5498 or a similarstatement from plan sponsors, showing all the contributions made toyour IRA for 1999. Nondeductible Contributions Although your deduction for IRA contributions may be reduced oreliminated (see How Much Can I Deduct?, earlier), acontribution can be made to your IRA of up to $2,000 or 100% ofcompensation, whichever is less. For a spousal IRA, see SpousalIRA limit, under How Much Can Be Contributed?,earlier. The difference between your total permitted contributions andyour total deductible contributions, if any, is your nondeductiblecontribution. Example.ERROR MSGSonny Martin is single. In 1999, he is covered by a retirement planat work. His salary is $52,312. His modified adjusted gross income(modified AGI) is $55,000. Sonny makes a $2,000 IRA contribution forthat year. Because he is covered by a retirement plan and his modifiedAGI is above $41,000, he cannot deduct his $2,000 IRA contribution.However, he can choose to either: Designate this contribution as a nondeductible contributionby reporting it on his tax return, as explained later undervery cheap hotels Plitvicka JezeraReporting Nondeductible Contributions, or Withdraw the contribution as explained later underContributions returned before the due date. As long as contributions are within the contribution limits, noneof the earnings or gains on those contributions (deductible ornondeductible) will be taxed until they are distributed. See WhenCan I Withdraw or Use IRA Assets?, later. Cost basis.You will have a cost basis in your IRA if there are nondeductiblecontributions. Your basis is the sum of the nondeductiblecontributions to your IRA less any distributions of those amounts.When you withdraw (or receive distributions of) these amounts, asdiscussed later under Are Distributions Taxable?, you cando so tax free. Caution: Generally, you cannot withdraw only the amounts representing yourbasis. If deductible contributions have been made to any of yourtraditional IRAs, your withdrawals from any of your IRAs willgenerally include both taxable and nontaxable (basis) amounts. SeeAre Distributions Taxable?, later, for more information. Reporting Nondeductible Contributions You must report nondeductible contributions, but you do not have todesignate a contribution as nondeductible until you file your taxreturn. When you file, you can even designate otherwise deductiblecontributions as nondeductible. Designating nondeductible contributions.To designate contributions as nondeductible, you must file Form8606. (See the filled-in Forms 8606 in Appendix D.) Youmust file Form 8606 to report nondeductible contributions even if youdo not have to file a tax return for the year. Form 8606.You must file Form 8606 if any of the following applies. You made nondeductible contributions to a traditional IRAfor 1999. You received distributions from a traditional IRA in 1999and you have ever made nondeductible contributions to a traditionalIRA. You converted part or all of the assets in a traditional IRAor a SIMPLE IRA to a Roth IRA during 1999. See chapter 2. You recharacterized amounts that were converted to a RothIRA. See chapter 2. You received distributions from a Roth IRA in 1999. Seechapter 2. You have a recharacterization involving a Roth IRAcontribution. See chapter 2. You are the beneficiary of an education IRA and you receiveddistributions from an education IRA in 1999. See chapter 3. TaxTip: You are not required to file Form 8606 to reportcontributions to Roth or education IRAs. Failure to report nondeductible contributions.If you do not report nondeductible contributions, all of thecontributions to your traditional IRA will be treated as deductible.When you make withdrawals from your IRA, the amounts you withdraw willbe taxed unless you can show, with satisfactory evidence, thatnondeductible contributions were made. There is a recordkeeping worksheet, Appendix A, Summary Recordof Traditional IRA(s) for 1999, that you can use to keep recordsof deductible and nondeductible IRA contributions. Penalty for overstatement.If you overstate the amount of nondeductible contributions on yourForm 8606 for any tax year, you must pay a penalty of $100 for eachoverstatement, unless it was due to reasonable cause. Penalty for failure to file Form 8606.You will have to pay a $50 penalty if you do not file a requiredForm 8606, unless you can prove that the failure was due to reasonablecause. Examples --Worksheet forReduced IRA Deduction The following examples illustrate the use of the IRA deductionworksheet shown earlier under How To Figure Your Reduced IRADeduction. Example 1.For 1999, Tom and Betty Smith file a joint return on Form 1040.They both work and Tom is covered by his employer's retirement plan.Tom's salary is $40,000 and Betty's is $16,555. They each have atraditional IRA and their combined modified AGI is $57,555. Sincetheir modified AGI is between $51,000 and $61,000 and Tom is coveredby an employer plan, Tom is subject to the deduction phaseoutdiscussed earlier under Deduction Limits. For 1999, Tom contributed $2,000 to his IRA and Betty contributed$2,000 to hers. Even though they file a joint return, they must useseparate worksheets to figure the IRA deduction for each of them. Tom can take a deduction of only $690. He must treat $1,310 ($2,000minus $690) of his contributions as nondeductible. He can choose to treat the $690 as either deductible ornondeductible contributions. He can either leave the $1,310 ofnondeductible contributions in his IRA or withdraw them by April 17,2000. He decides to treat the $690 as deductible contributions andleave the $1,310 of nondeductible contributions in his IRA. Using the Worksheet for Reduced IRA Deduction, Tomfigures his deductible and nondeductible amounts as follows: Worksheet for Reduced IRA Deduction (Use only if you or your spouse is covered by anemployer plan and your modified AGI is within the phaseout range thatapplies.) If you are covered andyour filing status is: And yourmodified AGIis over: Enter online 1below:  Single, or Head of household $31,000 $41,000  Married-joint return, or Qualifying widow(er) $51,000 $61,000  Married-separate return $ -0- $10,000 If your spouse is covered, but youare not, and your filing status is: And yourmodified AGIis over: Enter online 1below:  Married-joint return $150,000 $160,000  Married-separate return $-0- $ 10,000 1. Enter the amount from above that applies $ 61,000 2. Enter your modified AGI (that ofboth spouses, if married filing jointly)     57,555 Note.If line 2 is equal to or more than the amount on line 1, STOPHERE. Your IRA contributions are not deductible. SeeNondeductible Contributions, earlier. 3. Subtract line 2 from line 1. If line 3is $10,000 or more, STOP HERE. You can take a full IRA deductionfor contributions of up to $2,000 or 100% of your compensation,whichever is less.      3,445 4. Multiply line 3 by 20% (.20). If the resultis not a multiple of $10, round it to the next highest multiple of$10. (For example, $611.40 is rounded to $620.) However, if the resultis less than $200, enter $200        690 5. Enter your compensation. If you are filing a jointreturn and your compensation is less than your spouse's, include yourspouse's compensation reduced by his or her traditional IRAcontribution and contributions to Roth IRAs for this year. If you fileForm 1040, do not reduce your compensation by any losses fromself-employment.     40,000 6. Enter contributions made, or to be made, toyour IRA for 1999, but do not enter more than $2,000. Ifcontributions are more than $2,000, see Excess Contributions,later.      2,000 7. IRA deduction. Compare lines 4, 5,and 6. Enter the smallest amount (or a smaller amount if you choose)here and on the Form 1040 or 1040A line for your IRA, whicheverapplies. If line 6 is more than line 7 and you want to make anondeductible contribution, go to line 8.        690 8. Nondeductible contribution.Subtract line 7 from line 5 or 6, whichever is smaller. Enterthe result here and on line 1 of your Form 8606.      1,310 Betty figures her IRA deduction as follows. Betty can treat all orpart of her contributions as either deductible or nondeductible. Thisis because her $2,000 contribution for 1999 is not subject to thededuction phaseout discussed earlier under Deduction Limits.She does not need to use the Worksheet for Reduced IRA Deductionsince their modified AGI is not within the phaseout range thatapplies. Betty decides to treat her $2,000 IRA contributions asdeductible. The IRA deductions of $690 and $2,000 on the joint return for Tomand Betty total $2,690. Example 2.Assume the same facts as in Example 1, except that Tomcontributed $2,000 to his Roth IRA and $2,000 to a traditional IRA forBetty (a spousal IRA) because Betty had no compensation for the yearand did not contribute to an IRA. Also, their modified AGI hasincreased to $156,555. Betty figures her IRA deduction as follows: Worksheet for Reduced IRA Deduction (Use only if you or your spouse is covered by anemployer plan and your modified AGI is within the phaseout range thatapplies.) If you are covered andyour filing status is: And yourmodified AGIis over: Enter online 1below:  Single, or Head of household $31,000 $41,000  Married-joint return, or Qualifying widow(er) $51,000 $61,000  Married-separate return $ -0- $10,000 If your spouse is covered, but youare not, and your filing status is: And yourmodified AGIis over: Enter online 1below:  Married-joint return $150,000 $160,000  Married-separate return $-0- $ 10,000 1. Enter the amount from above that applies   $160,000 2. Enter your modified AGI (that ofboth spouses, if married filing jointly)    156,555 Note.If line 2 is equal to or more than the amount on line 1, STOPHERE. Your IRA contributions are not deductible. SeeNondeductible Contributions, earlier. 3. Subtract line 2 from line 1. If line 3is $10,000 or more, STOP HERE. You can take a full IRA deductionfor contributions of up to $2,000 or 100% of your compensation,whichever is less. 3,445  4. Multiply line 3 by 20% (.20). If the resultis not a multiple of $10, round it to the next highest multiple of$10. (For example, $611.40 is rounded to $620.) However, if the resultis less than $200, enter $200  690  5. Enter your compensation. If you are filing a jointreturn and your compensation is less than your spouse's, include yourspouse's compensation reduced by his or her traditional IRAcontribution and contributions to Roth IRAs for this year. If you fileForm 1040, do not reduce your compensation by any losses fromself-employment.    38,000* 6. Enter contributions made, or to be made, toyour IRA for 1999, but do not enter more than $2,000. (Ifcontributions are more than $2,000, see Excess Contributions,later.) 2,000  7. IRA deduction. Compare lines 4, 5,and 6. Enter the smallest amount (or a smaller amount if you choose)here and on the Form 1040 or 1040A line for your IRA, whicheverapplies. (If line 6 is more than line 7 and you want to make anondeductible contribution, go to line 8.)  690  8. Nondeductible contribution.Subtract line 7 from line 5 or 6, whichever is smaller. Enterthe result here and on line 1 of your Form 8606. 1,310  * $0 plus $40,000 minus $2,000 =$38,000.