File Form 8606 with your federal tax return any year you make a nondeductible contribution to a Traditional IRA, take a distribution from a Traditional, SEP, or SIMPLE IRA that holds after-tax money, convert Traditional IRA funds to a Roth IRA, or receive certain Roth IRA distributions. The form is how the IRS tracks the after-tax dollars in your retirement accounts so those dollars aren’t taxed a second time when they come out. Skip the form, and the default assumption is that every dollar leaving your IRA is taxable income.
The Four Situations That Require Form 8606
The official instructions identify four separate triggers, and any one of them puts the form on your return:
- You made a nondeductible contribution to a Traditional IRA, usually because your income exceeded the deduction phase-out while you or your spouse participated in a workplace retirement plan.
- You took a distribution from a Traditional, SEP, or SIMPLE IRA and you have basis (after-tax money) in any of those accounts from prior nondeductible contributions or rollovers.
- You converted money from a Traditional, SEP, or SIMPLE IRA to a Roth IRA.
- You received a distribution from a Roth IRA that isn’t clearly qualified.1Internal Revenue Service. About Form 8606, Nondeductible IRAs
That last trigger is the one that surprises people. Roth withdrawals are often tax-free, but they aren’t always. Pulling conversion amounts within five years of the conversion, or taking earnings out before age 59½ without an exception, can make part of the distribution taxable. Part III of the form runs the ordering rules that sort out which category of Roth money came out first.
When a Traditional IRA Contribution Becomes Nondeductible
For 2026, the IRA contribution limit is $7,500, with an extra $1,100 catch-up available at age 50 and older, for a total of $8,600.2Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Whether that contribution is deductible depends on your modified adjusted gross income and whether you or your spouse is covered by a workplace retirement plan. If your income lands in or above the following ranges, some or all of the contribution is nondeductible and Form 8606 comes into play:
- Single or head of household, covered by a workplace plan: $81,000 to $91,000.
- Married filing jointly, contributing spouse covered: $129,000 to $149,000.
- Married filing jointly, contributing spouse not covered but other spouse is: $242,000 to $252,000.
- Married filing separately, covered by a workplace plan: $0 to $10,000.3Internal Revenue Service. IRS Notice 2025-67 – 2026 Amounts Relating to Retirement Plans and IRAs
If neither spouse is covered by a workplace plan, the Traditional IRA contribution is fully deductible at any income, and no Form 8606 is needed for it.
Tracking Basis in Part I
Part I builds and maintains your running total of after-tax money in your Traditional, SEP, and SIMPLE IRAs. The IRS calls this “basis.” You report the current year’s nondeductible contribution, add the cumulative basis carried forward from the prior year’s Form 8606, and land on your total basis before distributions or conversions.4Internal Revenue Service. Form 8606 – Nondeductible IRAs That figure carries forward year after year, which is why a break in the filing chain causes problems later.
All Your IRAs Count as One
Federal law treats every Traditional, SEP, and SIMPLE IRA you own as a single account for basis purposes.5Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts Five accounts at three brokerages, one pool of money. You can’t withdraw only from the account that holds your after-tax contributions and call the whole distribution tax-free. The pro-rata rule spreads basis across the aggregated balance.
To run the calculation, you need the combined December 31 fair market value of all your Traditional, SEP, and SIMPLE IRAs, plus any amounts distributed or converted during the year added back. Your total basis divided by that adjusted value is the percentage of each withdrawn dollar that returns tax-free.
After-Tax 401(k) Rollovers Also Create Basis
Nondeductible contributions aren’t the only source of basis. If you rolled after-tax money out of a 401(k) or similar employer plan into a Traditional IRA, those nontaxable rollover amounts count as basis and belong on Form 8606.6Internal Revenue Service. Instructions for Form 8606 It’s easy to forget a rollover from years ago, so if you ever moved after-tax employer money into an IRA, confirm your current basis reflects it.
Qualified Charitable Distributions Sit Outside the Calculation
If you’re 70½ or older and send money directly from your IRA to a charity, that qualified charitable distribution isn’t included in the distribution figure on the form. It falls outside the pro-rata calculation, and it doesn’t consume any of your basis. Your after-tax pool stays intact for future withdrawals.
Roth Conversions in Part II
When you move money from a Traditional, SEP, or SIMPLE IRA into a Roth IRA, Part II determines how much of that conversion is taxable. If you have basis in the source accounts, the same pro-rata ratio calculated in Part I applies. The nontaxable portion of the conversion is subtracted from the total converted, and the remainder flows onto Line 4b of Form 1040 as income.
The Backdoor Roth and Its Pitfall
The backdoor Roth is where most people first meet Part II. The strategy: make a nondeductible Traditional IRA contribution (Part I), then convert those dollars to a Roth (Part II). If the Traditional IRA holds no other money, basis equals the full contribution and the conversion is almost entirely tax-free.
The trap is other pre-tax IRA money. Because of aggregation, a conversion pulls proportionally from pre-tax and after-tax dollars across all your Traditional, SEP, and SIMPLE IRAs. A $7,500 backdoor contribution converted while you also hold $92,500 of pre-tax IRA money isn’t a $7,500 tax-free move. Only about 7.5% of the conversion is nontaxable in that scenario. People discover this at tax time, after the conversion is done.
Conversions Are Permanent
Before 2018, a Roth conversion could be reversed through a recharacterization. The Tax Cuts and Jobs Act eliminated that option for conversions dated January 1, 2018 or later. Once you convert, it’s done. You can still recharacterize a Roth IRA contribution (moving it to a Traditional IRA before your filing deadline including extensions), but that’s a different transaction. Plan the numbers before you pull the trigger.
Distributions From Traditional, SEP, and SIMPLE IRAs
Part III handles distributions from these accounts when you have basis. The same ratio from Part I decides how much of the withdrawal is tax-free. If your total basis is $20,000 and your adjusted account value is $200,000, then 10% of any withdrawal is a tax-free return of basis and 90% is taxable income.
Without Form 8606, your IRA custodian reports the full distribution on Form 1099-R, typically as fully taxable or with the taxable amount blank. Filing the form is the only way to claim the nontaxable portion. Whatever basis you recover in a distribution is subtracted from your total and the rest carries forward on next year’s form.
Distributions taken before age 59½ face an additional 10% tax on the taxable portion, reported on Form 5329, unless an exception applies such as disability, substantially equal periodic payments, or certain medical expenses.7Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions The nontaxable portion identified by Form 8606 escapes that 10% as well, which makes accurate basis tracking more valuable the younger you are when distributions start.
Roth Distributions
Most qualified Roth distributions are entirely tax-free and don’t require Part III at all. You can generally skip it if you’re over 59½ and the Roth has been open at least five years.6Internal Revenue Service. Instructions for Form 8606
You need Part III when a Roth distribution could be partially taxable: withdrawing converted amounts within five years of the conversion, taking earnings out before 59½, or receiving a distribution that doesn’t meet the account’s five-year holding period. The form applies ordering rules — contributions come out first (always tax-free), then conversions (which can trigger the 10% penalty if within the five-year window), then earnings (taxable if the distribution isn’t qualified).
Even when you’re confident a Roth distribution is fully tax-free, filing the form builds the paper trail of contribution and conversion history that becomes your evidence if the IRS questions a later withdrawal.
Inherited IRAs
If you inherit a Traditional IRA from someone who had nondeductible basis, that basis passes to you. You file Form 8606 when you take distributions from the inherited account, and the IRS instructions note that you may need to file a separate Form 8606 for the inherited IRA, distinct from any you file for your own IRAs.6Internal Revenue Service. Instructions for Form 8606
The practical difficulty is figuring out how much basis the original owner had. Their most recent Form 8606 is the best source. Failing that, old Form 5498 statements from the custodian and prior tax returns can help reconstruct it, but the burden of proof rests on you as beneficiary.
Deadlines and Late Filing
Form 8606 is filed with your annual tax return, so the deadline is April 15 following the tax year, or October 15 with an extension. Contributions made between January 1 and April 15 can be designated for either the current or prior tax year.
If you missed the form in a prior year, you can file it retroactively. The instructions don’t set a specific time limit on late filings. Use the version of Form 8606 that matches the tax year in question. If a correction changes a prior return, attach the corrected Form 8606 to a Form 1040-X.8Internal Revenue Service. Instructions for Form 8606 Include a short statement explaining why the form is late. Sooner is better, because errors compound across years of incorrect basis.
Penalties, and the Cost of Losing Basis
The direct penalty for failing to file Form 8606 is $50 per missed form. Overstating your nondeductible contributions carries a $100 penalty per overstatement. Both can be waived for reasonable cause.9Office of the Law Revision Counsel. 26 USC 6693 – Failure to Provide Reports on Individual Retirement Accounts or Annuities
Those dollar amounts are almost beside the point. The real cost of not filing is losing your basis. Without the record, the IRS treats every dollar of every distribution as taxable. On a $50,000 withdrawal from an IRA that held $15,000 of after-tax money, that’s $15,000 of phantom income; at a 22% marginal rate, an extra $3,300 in tax on a single distribution. Repeat that over decades of retirement withdrawals and the double taxation dwarfs any filing penalty.
Keep every Form 8606 you file along with the Form 5498 statements your custodian sends each year. Basis can build for thirty or forty years before you start drawing on it, and the paper trail is what protects the money.