Form 8606: Nondeductible IRA Contributions

When it comes to retirement savings, things can get a little tricky once you start mixing traditional IRAs, Roth IRAs, and after-tax contributions. That’s where Form 8606 comes in. If you’ve ever made non-deductible contributions to a traditional IRA or done a backdoor Roth conversion, you’re probably already familiar with this form—or at least you’ve heard your tax software mention it. But even if this is your first time hearing about it, don’t worry. We’re going to break it all down.

What Is Form 8606?

Form 8606 is an IRS form used to track money that you’ve already paid taxes on when contributing to a traditional IRA. This includes things like non-deductible contributions, Roth conversions, and distributions from those accounts. The main reason the IRS uses this form is to make sure you’re not taxed twice on the same money when you withdraw it later on.

It also comes into play when you convert a traditional IRA to a Roth IRA, especially if some of that money has already been taxed. If you don’t file it when required, you could be setting yourself up for double taxation down the line—or penalties for incomplete reporting.

Who Has to File Form 8606?

You’ll need to file Form 8606 if any of the following apply to you in a given tax year:

You made a non-deductible contribution to a traditional IRA.
You took a distribution from a traditional, SEP, or SIMPLE IRA that includes after-tax contributions.
You converted part or all of a traditional IRA to a Roth IRA.
You took a distribution from a Roth IRA that isn’t entirely qualified (especially if you’ve had it less than five years).

If none of these situations apply to you, then you probably don’t need to worry about it. But if even one of them does, you’ll want to fill out this form and include it with your tax return.

Why Form 8606 Matters

Here’s why Form 8606 is more important than it might seem at first glance: It helps you keep a clean record of the basis in your traditional IRA. The “basis” is just a fancy way of saying the amount of money you’ve already paid taxes on. When you take money out of your IRA in retirement, only the part that hasn’t been taxed yet is considered taxable income.

If you don’t report your basis using Form 8606, the IRS assumes all distributions are fully taxable. That’s not good news. For example, if you contributed $6,000 of after-tax money to your traditional IRA and later withdrew $6,000, but didn’t report the original contribution with Form 8606, you could end up paying taxes on that same $6,000 all over again.

Backdoor Roth IRAs and Form 8606

The backdoor Roth strategy has become really popular in recent years, especially for higher-income earners who earn too much to contribute directly to a Roth IRA. The process involves making a non-deductible contribution to a traditional IRA and then converting it to a Roth IRA.

Sounds simple enough, right? But there’s a catch. The IRS wants to know whether any part of that money has already been taxed—and that’s where Form 8606 comes into play. It helps the IRS track what part of the conversion is taxable and what part isn’t. If you skip it or fill it out incorrectly, you might get hit with unexpected taxes or penalties.

The Pro Rata Rule

When it comes to Roth conversions, the IRS applies something called the “pro rata rule.” This means that if you have both pre-tax and post-tax money in your IRA accounts, any conversion or withdrawal is split proportionally between the two. So if you have $10,000 in total IRAs and $2,000 of that is after-tax contributions, 20% of any conversion or withdrawal will be considered tax-free—and the remaining 80% will be taxed.

Form 8606 is what tells the IRS what that split should be. Without it, they’re going to assume the entire amount is taxable, which could cost you a lot more than necessary.

Common Mistakes to Avoid

A few errors show up often with Form 8606. One is not filing the form at all when you make non-deductible contributions. Another is forgetting to file it in a year when you do a backdoor Roth. People also sometimes enter the wrong basis, or forget about contributions made in earlier years.

Because this form carries over from year to year—especially if you’ve been making non-deductible contributions for a while—it’s important to keep a clean, accurate record. Your basis doesn’t reset each year, it builds up over time.

How to File Form 8606

Step 1: Confirm that you actually need to file Form 8606
Before diving in, make sure your situation calls for it. You’ll need this form if you made non-deductible contributions to a traditional IRA, converted funds from a traditional IRA to a Roth IRA, or took distributions from an IRA that includes after-tax money. You also might need it if you took an early distribution from a Roth IRA that isn’t fully qualified.

Step 2: Gather your records
You’ll want to have your IRA contribution records, Form 1099-R (which reports distributions or conversions), and your previous year’s Form 8606 if you’ve filed one before. This is key because Form 8606 builds on itself year to year — you track the basis (after-tax contributions) over time.

Step 3: Complete Part I if you made a non-deductible traditional IRA contribution
This section tells the IRS how much you contributed to a traditional IRA for the year, how much was deductible or not, and how much basis you now have in your IRA. It calculates the taxable and non-taxable portion of any distribution or conversion you might have done.

Step 4: Fill out Part II if you converted from a traditional IRA to a Roth IRA
If you converted any funds, this section helps figure out how much of that conversion is taxable based on your basis. If the money you converted was all pre-tax, it’s all taxable. If it included after-tax contributions, this part ensures you’re not taxed twice on those dollars.

Step 5: Use Part III if you took a distribution from a Roth IRA
This section is only for certain Roth IRA withdrawals that might not qualify for full tax-free treatment — like if the account is less than five years old or you’re under 59½ and don’t meet any of the exceptions. It walks through whether any part of the withdrawal is taxable.

Step 6: Double-check your math and the carryover basis
If you’re entering numbers manually, make sure to double-check that you’re carrying forward the correct basis from the prior year. This helps keep things accurate long-term and avoids headaches in the future. Tax software usually does this automatically, but it’s still good to verify.

Step 7: Submit Form 8606 with your tax return
You’ll include Form 8606 with your Form 1040 when you file your taxes. If you’re e-filing, your software should attach it automatically. If you’re mailing your return, include the completed Form 8606 with the rest of your paperwork.

Step 8: Keep a copy for your records
Hold on to a copy of Form 8606 every year you file it. This form tracks your IRA basis across multiple years, so if you misplace it or skip a year, it can throw things off when you take distributions later.

When Not to File Form 8606

If you only have deductible contributions and haven’t done any conversions or taken any distributions, then you don’t need to worry about Form 8606. It’s specifically for tracking after-tax contributions and how they move around between accounts.

The Final Word on Form 8606…

Form 8606 might not get as much attention as some other tax forms, but it plays a really important role in managing your retirement accounts. If you’ve ever made non-deductible IRA contributions, done a Roth conversion, or withdrawn money that includes after-tax dollars, this form helps you report it correctly and avoid paying more taxes than you need to.

Retirement planning is complicated enough without getting hit with extra tax bills. Filing Form 8606 when required is one of those small-but-crucial details that can make a big difference. So don’t ignore it. Keep your records organized, double-check your basis, and file the form right along with your return.

1. What exactly is Form 8606 and why would I need to file it?

Form 8606 is an IRS form that keeps track of the after-tax money you’ve contributed to your traditional IRA. Normally, traditional IRA contributions are pre-tax, which means you get a deduction now but pay taxes later. But when you make a non-deductible contribution, that’s money you’ve already paid tax on, and you don’t want to pay tax on it again when you withdraw it in retirement. Form 8606 tells the IRS not to tax you twice. You also need it if you do a Roth conversion, take distributions from an account with mixed contributions, or pull from a Roth IRA under specific conditions.

2. What happens if I forget to file Form 8606?

If you forget to file Form 8606 in a year you were supposed to, the IRS might assume the full amount you withdrew or converted is taxable, even if you already paid taxes on some of it. This could mean paying more in taxes than necessary. On top of that, there can be a penalty of $50 for each missed form. The good news is, you can usually fix this by filing an amended return with the missing Form 8606. It’s a little bit of paperwork, but it’s worth it to correct the record and avoid future confusion.

Do I need to file Form 8606 every year?

Not necessarily. You only need to file Form 8606 in the years when you make non-deductible contributions to a traditional IRA, convert to a Roth IRA, or take distributions from either a traditional or Roth IRA that involves after-tax contributions. If you didn’t do any of those things in a given year, there’s no need to file it. That said, once you start tracking your basis, it’s really important to stay consistent and not lose track of the paperwork from year to year.

How do I know if my IRA contribution is non-deductible?

Whether or not your contribution is deductible depends on a few things—like your income, whether you or your spouse is covered by a retirement plan at work, and your filing status. If your income is too high, or if you’re already covered by an employer-sponsored plan, the deduction might be reduced or phased out altogether. In that case, your contribution becomes non-deductible, and that’s when Form 8606 comes into the picture. A lot of tax software will ask you about this directly, but it’s good to check your own eligibility each year too.

Is Form 8606 only for traditional IRAs?

No, it can apply to Roth IRAs too, but in a more limited way. You use Form 8606 to report Roth IRA conversions, especially if the money being converted includes after-tax contributions. Also, if you take a distribution from a Roth IRA and it’s not fully qualified—like if you haven’t had the account for at least five years—it may require some reporting on this form. So while it’s mostly about traditional IRAs, Roths can get involved too depending on what kind of transaction you’re doing.

Can I fill out Form 8606 myself, or do I need a professional?

You can definitely fill it out yourself, especially if you’re using good tax software. It’ll usually walk you through the questions step-by-step and help calculate everything for you. But if you’ve been making non-deductible contributions for several years and haven’t kept great records, or if you’re doing something more complex like large conversions or combining multiple accounts, it might be worth talking to a tax pro. The form itself isn’t too complicated, but getting the numbers right is really important for avoiding double taxation later.

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