How to File Form 8606 for Nondeductible IRAs

IRS Form 8606, Nondeductible IRAs, is a tax document for specific transactions related to your Individual Retirement Arrangements. It tracks your after-tax contributions to these accounts to establish your “basis,” which is the amount you can withdraw from your IRAs tax-free. The form addresses nondeductible contributions, conversions to Roth IRAs, and certain distributions from traditional, SEP, SIMPLE, and Roth IRAs.

Who Must File Form 8606

Filing Form 8606 is mandatory under specific circumstances. You must file the form for any year you make a nondeductible contribution to a traditional IRA, which occurs when your income is too high to deduct the contribution. You must also file if you took distributions from a traditional, SEP, or SIMPLE IRA and have ever made nondeductible contributions. For this rule, a “distribution” does not include a rollover, conversion, recharacterization, or qualified charitable distribution.

The requirement to file also arises when you convert funds from a traditional, SEP, or SIMPLE IRA into a Roth IRA. This transaction is reported on Form 8606 regardless of whether you have a basis in your traditional IRAs. Finally, you must file if you take a distribution from a Roth IRA to determine if any portion is taxable, which is relevant for non-qualified distributions.

Information and Calculations for Form 8606

To complete Form 8606, you will need several documents. Have your prior-year Form 8606 available, as the current form asks for your total IRA basis from the previous year. You will also need Form 5498 to confirm your contribution amounts and Form 1099-R, which details your distributions and conversions.

Your “IRA basis” is the total of all your nondeductible contributions to traditional IRAs. To determine how much of a distribution is taxable, the IRS requires you to use the pro-rata rule. This rule states that any distribution from a traditional IRA is a mix of your pre-tax money (deductible contributions and earnings) and post-tax money (your basis).

To apply the pro-rata rule, you need the value of all your traditional, SEP, and SIMPLE IRAs as of December 31, plus any distributions you took during the year. You then divide your total basis by this amount to find the percentage that represents the tax-free portion of your distribution. For example, if your basis is $10,000 and your total IRA value plus distributions is $100,000, then 10% of your distribution is tax-free.

Completing the Parts of Form 8606

Form 8606 is divided into three parts, each addressing a different type of IRA transaction. You only need to complete the parts that apply to your situation.

Nondeductible Contributions and Distributions

Part I is for reporting nondeductible contributions to traditional IRAs and calculating the taxable portion of distributions from traditional, SEP, or SIMPLE IRAs. You will enter your nondeductible contributions for the year on line 1 and your total basis from prior years on line 2. The following lines use the pro-rata calculation to determine the taxable portion of your distribution to report on your Form 1040.

Conversions to Roth IRAs

Part II is for reporting conversions from a traditional, SEP, or SIMPLE IRA to a Roth IRA. You will report the total conversion amount and use the basis from Part I to determine the taxable portion. Generally, the entire converted amount is taxable unless you have a basis from nondeductible contributions, which makes that portion of the conversion tax-free.

Distributions From Roth IRAs

Part III addresses distributions from Roth IRAs and calculates if any portion is taxable. Distributions are sourced first from your direct contributions, which are always tax-free. After contributions are depleted, withdrawals are sourced from converted amounts and then from earnings. Earnings may be taxable if you do not meet age and holding period requirements.

Filing and Record-Keeping

File the completed Form 8606 with your annual income tax return by attaching it to your Form 1040, 1040-SR, or 1040-NR. The filing deadline is your tax return due date, including extensions, which for the 2024 tax year is April 15, 2025. If you are not required to file an income tax return but must file Form 8606, you must still file the form by the tax deadline.

You must keep a copy of every Form 8606 you file, as the IRS does not track your IRA basis. The total basis from your most recent Form 8606 is needed to calculate the taxability of future distributions. Without these records, you could pay tax on the same money twice. Retain these forms indefinitely as proof of your IRA basis.