How to File Form 8606: Nondeductible IRA Contributions

A high earner finds out that they make too much to contribute to a Roth IRA, but that they can do a "backdoor Roth" by funding a traditional IRA (with no deduction) and then converting to Roth.

They do this several times, and then when a new preparer asks for Forms 8606, they find that they don't have any, and that nobody has been reporting the after-tax contributions, and nobody has kept track of the old rollover IRA at another brokerage, resulting in their conversions to Roth being non-taxable events.

The IRS doesn't know about the basis in their traditional IRA so it's all taxable income to them.

The Form 8606 serves as a record that allows the IRS to know about the existence of basis in an IRA. Basis is money that has already been taxed, most often nondeductible contributions to a traditional IRA.

Once money is distributed from the IRA, the basis is distributed tax-free, and the rest is taxed as income. The IRS has no knowledge of the existence of the basis unless the taxpayer reports it with Form 8606, and the default assumption is that all distributions are taxable. The form is also what reports Roth conversions and calculates certain distributions from Roth IRAs.

This guide explains who has to file Form 8606, how IRA basis works, the contribution and income limits, how the pro-rata rule applies to distributions and conversions, how to do a backdoor Roth correctly, how Roth IRA distributions are taxed, deadlines and penalties, and what to do if you missed prior years.

What is Form 8606?

Form 8606 tracks after-tax (non-deductible) contributions to traditional IRAs and governs the taxation of IRA distributions and Roth conversions. Filing it correctly prevents double taxation ensuring you don't pay tax again on money that was already taxed when contributed. It also applies when you take distributions from a Roth IRA that include both contributions and earnings.

Form 8606, Nondeductible IRAs, is used to:

Report nondeductible contributions to traditional IRAs and track your total basis.

Figure the taxable and nontaxable parts of distributions from traditional, SEP, and SIMPLE IRAs when you have basis.

Report conversions from traditional, SEP, and SIMPLE IRAs to Roth IRAs.

Figure the taxable part of certain Roth IRA distributions and track your basis in Roth contributions and conversions.

Form 8606 is generally filed for each spouse separately, since IRAs and IRA basis belong to one person, even on a joint return.

The relevant rules for conversions aren't obvious either. The IRS will consider all IRAs as one giant account, so you can't convert just the after-tax portion of your IRA if you have any pre-tax money in any SEP, SIMPLE, or traditional IRA.

The conversions are always calculated based on the IRA balances at the end of the year, not the time of the conversion. And a single missed form can cost much more than the small penalty for neglecting to report basis, because the IRS may end up taxing the same income twice, once when the money went into the IRA and again when it's distributed many years later.

Who Must File Form 8606?

• Made non-deductible contributions to a traditional IRA for the year
• Received a distribution from a traditional, SEP, or SIMPLE IRA and have a basis from prior non-deductible contributions
• Converted a traditional IRA to a Roth IRA (Roth conversion)
• Received a distribution from a Roth IRA where basis tracking is needed

TY2025 IRA Contribution Limits

Note: income limits apply to Roth IRA direct contributions (phase-out: $150,000 to $165,000 single; $236,000 to $246,000 MFJ for TY2025). Above these limits, high earners use the 'backdoor Roth' strategy, make a non-deductible traditional IRA contribution then convert to Roth.

The Pro-Rata Rule: Critical for Backdoor Roth

If you have both deductible (pre-tax) and non-deductible (after-tax) IRA funds in ANY traditional IRA at year-end, you cannot convert only the non-deductible portion tax-free. The IRS treats all your traditional IRA funds as a single pool. The taxable portion of any conversion or distribution is calculated as:

Taxable % = (Total Pre-Tax IRA Balance) / (Total IRA Balance) x Distribution Amount

Example: $50,000 non-deductible contribution, $50,000 pre-tax rollover in same IRA = $100,000 total. Convert $50,000 to Roth: 50% taxable = $25,000 taxable, $25,000 tax-free. To cleanly do a backdoor Roth, the pre-tax IRA balance must be $0 at year-end (e.g. roll pre-tax funds into a 401(k) that accepts rollovers).

Penalties for Failing to File Form 8606

The $50 Failure-to-File Penalty

If you're required to file Form 8606 to report a nondeductible contribution to a traditional IRA and you don't, the IRS can charge a $50 penalty for each failure. The penalty doesn't apply if you can show the failure was due to reasonable cause.

The $100 Overstatement Penalty

If you overstate your nondeductible contributions on Form 8606, the IRS can charge a $100 penalty for each overstatement. This penalty also doesn't apply if you can show reasonable cause.

The Real Cost: Lost Basis

These penalties are small, and the IRS rarely assesses them. The bigger risk is what happens to your basis when Form 8606 isn't filed.

Form 8606 is the only record that shows the IRS you've already paid tax on part of your IRA. Without it, distributions and Roth conversions are generally treated as fully taxable. That means you can end up paying tax twice on the same money, once in the year you earned it and again when you take it out.

The problem often doesn't surface for years. Someone who made nondeductible contributions in their 30s may not take distributions until their 60s or 70s, by which point the records needed to prove basis, such as Forms 5498 and old brokerage statements, can be hard to find.

If You've Missed Filings

For years when you made nondeductible contributions but didn't take distributions or convert, you can generally file the missing Form 8606 on its own without amending that year's return. If you took distributions or converted and paid tax on money that should have been nontaxable, you may need to file amended returns, subject to the normal time limits for claiming refunds. Either way, rebuilding your basis history now is far easier than trying to prove it decades later.

Filing Deadline

Form 8606 is filed with the annual tax return (Form 1040/1040-SR) by April 15, 2026 for TY2025 (October 15, 2026 with extension). It can also be filed by itself (without a tax return) if you only need to report non-deductible contributions, due by the return due date including extensions.

Frequently Asked Questions

Written by

Ankit Sarawagi, CPA, CA, MBA

Ankit leads the finance team at Profitjets, where he has worked with 500+ businesses across the US on bookkeeping, tax and CFO-level strategy. He writes about the habits that keep small business books accurate all year. Connect on LinkedIn