How to Fill Out Form 8606 in FreeTaxUSA: Backdoor Roth and IRAs

To fill out Form 8606 in FreeTaxUSA, you don’t complete the form directly. The software builds it from four inputs scattered across two menus: your prior-year basis and current nondeductible contribution (entered under Deductions/Credits → IRA Contributions), plus any Form 1099-R activity and the December 31 total value of your Traditional, SEP, and SIMPLE IRAs (entered under Income → Retirement Income). Feed those numbers in correctly and Form 8606 generates on its own; miss one and the IRS treats money you already paid tax on as taxable again.

Form 8606 tracks the cumulative after-tax (nondeductible) basis in your non-Roth IRAs so those dollars aren’t taxed a second time on withdrawal or conversion.¹ You need it any year you make a nondeductible Traditional IRA contribution, take a distribution from a Traditional, SEP, or SIMPLE IRA that holds any basis, or convert Traditional IRA money to a Roth. Skipping it costs $50 per missed form; overstating your nondeductible contributions costs $100. Both penalties can be waived for reasonable cause.²

What to Gather Before You Open FreeTaxUSA

Four records determine whether the software produces a correct Form 8606:

Your prior year’s Form 8606, specifically the Line 14 figure. That is your cumulative basis carried into this year. If you have never filed Form 8606, treat it as zero.
Records of this year’s nondeductible contributions, from brokerage statements or Form 5498.
Form 1099-R for any distribution or conversion. You’ll need Box 1 (gross distribution), Box 2a (taxable amount), and Box 7 (distribution code).
The December 31 combined fair market value of every Traditional, SEP, and SIMPLE IRA you own. Form 5498 reports it, though that form sometimes arrives after the filing deadline.

The December 31 balance is not optional paperwork. The pro-rata rule requires treating all your Traditional, SEP, and SIMPLE IRAs as a single pool when calculating the taxable portion of any distribution or conversion.³ You cannot pull only the after-tax dollars out. Every dollar withdrawn is a proportional mix of pre-tax and after-tax money, based on the ratio of your total basis to your total IRA balance. Employer plans like 401(k)s and 403(b)s stay out of this calculation.

Entering a Nondeductible Traditional IRA Contribution

Contributions are entered under Deductions/Credits, not Income. Go to Deductions/Credits → Common Deductions/Credits → IRA Contributions.⁴ Enter the type of IRA (Traditional) and the amount you contributed.

FreeTaxUSA then asks about your income and whether you or your spouse is covered by an employer retirement plan to decide whether the contribution is deductible. If it is deductible but you want to treat it as nondeductible, which is the standard step in a backdoor Roth, the software presents a screen asking whether you want to take the IRA deduction. Answer “No” and enter the amount you’re treating as nondeductible. That choice is what tells FreeTaxUSA to populate Form 8606, Part I instead of claiming a deduction.

Still inside the IRA Contributions flow, you’ll reach an “IRA Basis and Value” page. Enter the Line 14 amount from last year’s Form 8606 here. FreeTaxUSA adds it to your current nondeductible contribution to arrive at your total basis. Leave this field blank and the software assumes zero basis, which turns every future distribution into fully taxable income. This is the single most common Form 8606 mistake, and it is entirely avoidable if you kept last year’s form.

Entering an IRA Distribution

Go to Income → Common Income → Retirement Income (Form 1099-R). Click “Add a 1099-R” and enter Box 1, Box 2a, and Box 7 from the form.⁴

When FreeTaxUSA detects a non-rollover distribution from a Traditional IRA, it asks for the December 31 total fair market value of all your Traditional, SEP, and SIMPLE IRAs. It combines that number with your distribution amount and cumulative basis to compute the pro-rata exclusion ratio. The nontaxable portion is subtracted from the gross distribution; the taxable figure flows to Form 1040, Line 4b, and the gross distribution appears on Line 4a.

Skipping the December 31 balance produces the same bad outcome as skipping your prior-year basis: the software treats everything as taxable, and you pay tax on money you already paid tax on.

Entering a Backdoor Roth Conversion

A backdoor Roth has two parts: a nondeductible contribution to a Traditional IRA and a conversion of that money to a Roth. Your custodian reports the conversion on Form 1099-R, usually with distribution code 2 if you’re under 59½ or code 7 if you’re 59½ or older.⁵

In FreeTaxUSA you enter the two parts in two different places. First, enter the 1099-R under Income → Common Income → Retirement Income (Form 1099-R). After the form data, FreeTaxUSA asks whether this was a Roth conversion. Answer yes and enter the converted amount.⁴ Then go to Deductions/Credits → IRA Contributions, enter your nondeductible contribution, decline the deduction, and enter your prior-year basis on the IRA Basis and Value page.

Those entries populate Form 8606, Part II. If you made the nondeductible contribution in the same year as the conversion and held no other pre-tax IRA money on December 31, the conversion is almost entirely tax-free; only investment gains between the contribution and conversion dates are taxable. If any Traditional, SEP, or SIMPLE IRA held pre-tax dollars on December 31, the pro-rata rule applies to the full aggregate balance, and FreeTaxUSA calculates the taxable percentage of the conversion from that ratio.⁶ The taxable amount flows to Form 1040, Line 4b.

Partial conversions work identically. FreeTaxUSA applies the pro-rata rule to the converted portion based on your total basis and aggregate balances, and any remaining basis carries forward to Line 14 for next year.

Recharacterizing a Contribution

A recharacterization reclassifies a contribution as if it had been made to the other type of IRA. The deadline is your return’s due date, including extensions. Since 2018, Roth conversions can no longer be recharacterized; the Tax Cuts and Jobs Act made conversions final.⁷

In FreeTaxUSA, recharacterizations are handled inside IRA Contributions. Enter the original contribution type and amount, then answer the software’s prompts about withdrawn or recharacterized amounts. The recharacterized contribution is treated as if made to the second IRA from the start, and Form 8606 adjusts accordingly.

Married Couples File Two Forms

If both spouses need Form 8606, the return includes two separate copies even when you file jointly.⁶ Each spouse’s basis is tracked independently. FreeTaxUSA asks IRA questions for each spouse separately, so enter the correct prior-year basis, December 31 balance, and current contributions under the right person. Swapping the numbers between spouses produces two wrong forms instead of one.

Inherited IRAs

Basis in an inherited Traditional IRA stays with that IRA. As a non-spouse beneficiary, you cannot combine inherited basis with basis in your own IRAs or with basis inherited from a different person. If you have both inherited and personal IRA distributions with basis in the same year, you’ll need two separate Forms 8606. FreeTaxUSA asks whether a 1099-R relates to an inherited IRA when you enter it and routes the data to the correct form.

Checking the Form Before You File

Once your entries are in, use FreeTaxUSA’s review or print section to pull the generated Form 8606 PDF. Two lines matter most.

Line 14 is the basis carried forward to next year. It should equal your cumulative nondeductible contributions minus any basis recovered through distributions or conversions. If it looks wrong, the cause is almost always upstream: a missing prior-year carryover, a wrong December 31 balance, or a contribution entered on the wrong screen.

Next, compare Form 1040 Line 4a and Line 4b. Line 4a should show the gross distribution; Line 4b should show only the taxable portion after pro-rata. If Line 4b equals Line 4a, the software believes you have no basis. Go back and check the IRA Basis and Value page and the December 31 balance prompt.

When you e-file, FreeTaxUSA attaches Form 8606 to the submission automatically. If you’re not otherwise required to file a return but still need Form 8606 (for example, because you made a nondeductible contribution and had no other filing requirement), you can file the form on its own. Sign it and mail it to the address you’d use for your 1040.⁶

Keep the Records for Decades

The IRS instructs you to keep every Form 8606, along with supporting Forms 5498 and 1099-R, until you’ve taken all distributions from your IRAs.⁸ For most people that means decades. The three-year retention rule that governs ordinary tax returns does not apply, because your basis follows the account for its entire life.⁹ Save each Form 8606 digitally and on paper, and note the Line 14 figure somewhere you can find it next April. If you lose the records, rebuilding basis means requesting old returns from the IRS (which are kept only for limited periods) or working through decades of bank statements.

1
Internal Revenue Service. About Form 8606, Nondeductible IRAs
2
Office of the Law Revision Counsel. 26 USC 6693 – Failure to Provide Reports on Certain Tax-Favored Accounts
3
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
4
FreeTaxUSA. Reporting a Backdoor Roth – Basic Scenario (2024 and Later)
5
Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
6
Internal Revenue Service. Instructions for Form 8606 (2025)
7
Internal Revenue Service. Retirement Plans FAQs Regarding IRAs
8
Internal Revenue Service. Instructions for Form 8606 (2025)
9
Internal Revenue Service. How Long Should I Keep Records?