Thursday, March 8, 2012

Purpose of Form 8453

Q.  Each year I receive Form 8453 from my brokerage firm, but I don't know what to do with it. Can you tell me its purpose?

A.  By law, your brokerage firm is required to send Form 8453 into the IRS reporting the balance of your retirement account. So, the first purpose would be to check the balance reported to see if it agrees with your records. The second purpose however, is to help calculate the tax basis of any non-deductible IRA contributions and or Roth IRA contributions. You may recall that traditional contributions are usually deductible, and therefore 100% taxable when withdrawn at retirement age. If, however, you were unable to deduct all or a portion of your contribution, a portion of your withdrawal will be non-taxable. Most professional software programs keep this information, which is why we request them from our clients.

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