Everything you need to know about Form 8606

What is Form 8606?

Form 8606, Nondeductible IRAs, is the IRS form taxpayers use to report contributions to traditional IRAs that they did not deduct on their tax return, distributions from any IRA when there's any basis from nondeductible contributions, conversions of traditional, SEP, or SIMPLE IRA amounts to Roth IRAs, and distributions from Roth IRAs that may include earnings. The form tracks "basis" — the after-tax dollars you've already paid tax on — so the IRS doesn't tax that money again when it eventually comes out of the IRA.

Who must file Form 8606?

File Form 8606 if any of the following applies for the year: you made nondeductible contributions to a traditional IRA; you received distributions from a traditional, SEP, or SIMPLE IRA and you have basis from prior nondeductible contributions; you converted any amount from a traditional, SEP, or SIMPLE IRA to a Roth IRA (including "backdoor Roth" transactions); you received a distribution from a Roth IRA (other than a rollover, recharacterization, or qualified distribution that includes only contributions). The form has separate parts for each situation.

Why basis tracking matters?

Without Form 8606, the IRS assumes every dollar coming out of a traditional IRA is pre-tax and fully taxable. If you contributed after-tax money — common for high earners who exceeded the deductible IRA income limit, or for backdoor Roth contributors — that basis needs to be on file. Lose track of basis and you'll pay tax twice on the same dollars. File Form 8606 every year you have nondeductible activity to maintain a running record.

When and how to file?

Form 8606 is attached to your Form 1040 or 1040-NR and due on the same deadline — April 15 for most filers. If you're not required to file an income tax return for the year but you still have nondeductible IRA activity, file Form 8606 alone by the same deadline (you'll need to sign and date it). The penalty for failing to file when required is $50 per missed form, and overstating basis carries a $100 penalty per occurrence. Backdoor Roth contributors should file Form 8606 every year of the strategy.