If you used the IRA Deduction Worksheet in the Form 1040 or 1040A instructions, subtract line 10 of the worksheet (or the amount you chose to deduct on Form 1040, line 24, or Form 1040A, line 17, if less) from the smaller of line 8 or line 9 of the worksheet. Enter the result on line 1 of Form 8606. You cannot deduct the amount included on line 1.

If you used the worksheet Figuring Your Reduced IRA Deduction for 2003 in Pub. 590, enter on line 1 of Form 8606 any nondeductible contributions from the appropriate lines of that worksheet.

If you did not have any deductible contributions, you may make nondeductible contributions up to your contribution limit. Enter on line 1 of Form 8606 your nondeductible contributions.

Do not include on line 1 contributions that you had returned to you with the related earnings (or less any loss). See page 4.

If this is the first year you are required to file Form 8606, enter zero. Otherwise, use the chart below to find the amount to enter on line 2.

However, you may need to adjust or include an amount on this line if your basis changed since you last filed Form 8606 because of any of the following.

If you made contributions to traditional IRAs for 2003 in 2003 and 2004 and you have both deductible and nondeductible contributions, you may choose to treat the contributions made in 2003 first as nondeductible contributions and then as deductible contributions, or vice versa. But the amount on line 4 cannot be less than the excess, if any, of the amount on line 1 over the contributions you actually made in 2003.

Example. You made contributions for 2003 of $1,500 in May 2003 and $1,500 in January 2004, of which $2,000 are deductible and $1,000 are nondeductible. You choose $1,000 of your contribution in 2003 to be nondeductible. You enter the $1,000 on line 1, but not line 4, and it becomes part of your basis for 2003.

Although the contributions to traditional IRAs for 2003 that you made from January 1, 2004, through April 15, 2004, can be treated as nondeductible, they are not included in figuring the nontaxable part of any distributions you received in 2003.

Enter the total value of all your traditional, SEP, and SIMPLE IRAs as of December 31, 2003, plus any outstanding rollovers. A statement should be sent to you by February 2, 2004, showing the value of each IRA on December 31, 2003. However, if you recharacterized any amounts, enter on line 6 the total value taking into account all recharacterizations, including recharacterizations made after December 31, 2003.

For line 6, a rollover is a tax-free distribution from one traditional, SEP, or SIMPLE IRA that is contributed to another traditional, SEP, or SIMPLE IRA. The rollover must be completed within 60 days of receiving the distribution from the first IRA. An outstanding rollover is any amount distributed within 60 days before the end of 2003 (from November 2 through December 31) that was rolled over after December 31, 2003, but within the 60-day rollover period.

The IRS may waive the 60-day requirement if failing to waive it would be against equity or good conscience, such as situations where a casualty, disaster, or other events beyond your reasonable control prevented you from meeting the 60-day requirement. Also, the 60-day period may be extended if you had a frozen deposit. See Pub. 590 for details.
Note: Do not include a rollover from a traditional or SEP IRA to a qualified employer plan even if it was an outstanding rollover.

If you received a distribution in 2003 from a traditional, SEP, or SIMPLE IRA and you also made contributions for 2003 to a traditional IRA that may not be fully deductible because of the income limits, you must make a special computation before completing the rest of this form. For details, including how to complete Form 8606, see Are Distributions Taxable? in Chapter 1 of Pub. 590.

Do not include any of the following on line 7.

If, in 2003, you converted any amounts from traditional, SEP, or SIMPLE IRAs to a Roth IRA, enter on line 8 the net amount you converted. To figure that amount, subtract from the total amount converted in 2003 any portion that you recharacterized back to traditional, SEP, or SIMPLE IRAs in 2003 or 2004 (see Recharacterizations on page 3). Do not take into account related earnings that were transferred with the recharacterized amount or any loss that occurred while the amount was in the Roth IRA. See item 1 under Reporting recharacterizations on page 3 for details.

If you were under age 59½ at the time you received distributions from your traditional, SEP, or SIMPLE IRA, there generally is an additional 10% tax on the portion of the distribution that is included in income (25% for a distribution from a SIMPLE IRA during the first 2 years). See the Instructions for Form 1040, line 57.

Limit on number of conversions.   If you converted an amount from a traditional, SEP, or SIMPLE IRA to a Roth IRA in 2003 and then recharacterized the amount back to a traditional, SEP, or SIMPLE IRA, you may not reconvert that amount until the later of January 1, 2004, or 30 days after the recharacterization. See Pub. 590 for details.

If you did not complete line 8, see the instructions for that line. Then, enter on line 16 the amount you would have entered on line 8 had you completed it.

If you did not complete line 11, enter on line 17 the amount from line 2 (or the amount you would have entered on line 2 if you had completed that line) plus any contributions included on line 1 that you made before the conversion.

Do not include on line 19 any of the following.

If, after considering the items above, you do not have an amount to enter on line 19, do not complete Part III; your Roth IRA distribution(s) is not taxable. Instead, include your total Roth IRA distribution(s) on Form 1040, line 15a; Form 1040A, line 11a; or Form 1040NR, line 16a.

Figure the amount to enter on line 20 as follows.

Generally, there is an additional 10% tax on 2003 distributions from a Roth IRA that are shown on line 21. The additional tax is figured in Part I of Form 5329. See the instructions for Form 5329, line 1, for details and exceptions. However, do not complete Form 5329 if you have an amount on line 23 that is equal to or more than the amount on line 21; you do not owe the additional 10% tax.

Figure the amount to enter on line 22 as follows.

If you had a qualified first-time homebuyer distribution from your Roth IRA and you made a contribution (including a conversion) to a Roth IRA for 1998, enter the amount of your qualified first-time homebuyer expenses on line 23, but do not enter more than $10,000.