I Forgot to File Form 8606. What Should I Do?

IRS Form 8606, Nondeductible IRAs, is the document used to report specific transactions related to your Individual Retirement Arrangements (IRAs). These transactions include making contributions with after-tax money or moving funds between different types of IRAs. Forgetting to file this form is a correctable mistake, and this guide explains the steps to take.

Understanding the Form 8606 Filing Requirement

You are required to file Form 8606 for any year in which certain events occur. The form’s primary purpose is to track your “basis,” which is the total amount of after-tax money in your IRAs. Tracking your basis is the only way to ensure you are not taxed on that same money again when you withdraw it in retirement.

One of the most common reasons for filing is making nondeductible contributions to a traditional IRA. This happens when you contribute money to a traditional IRA but your income is too high to qualify for a tax deduction, or you are an active participant in a workplace retirement plan like a 401(k). Form 8606 creates the official record of this after-tax contribution with the IRS.

Another trigger is taking a distribution from a traditional, SEP, or SIMPLE IRA, but only if you have a basis in any of those accounts. Because you have already paid tax on your basis, any distribution will be partially tax-free. The form is used to calculate the taxable portion of the withdrawal using the pro-rata rule, which considers the ratio of after-tax money to the total value of all your IRAs.

Finally, you must file Form 8606 if you convert funds from a traditional, SEP, or SIMPLE IRA to a Roth IRA. This transaction, often part of a “backdoor Roth IRA” strategy, is reported on the form to determine how much of the converted amount is subject to income tax for that year. This reporting is required even if the conversion consists entirely of after-tax funds.

Potential Repercussions for Non-Filing

Failing to file Form 8606 when required can lead to penalties and significant long-term tax consequences. The IRS can assess a $50 penalty for each year the form was not filed. A separate $100 penalty can apply if you overstate your nondeductible contributions on the form. Both penalties may be waived if you can demonstrate that the failure to file was due to “reasonable cause.”

The more damaging consequence is the potential for double taxation on your retirement savings. Without a filed Form 8606, the IRS has no official record of your after-tax contributions, which constitute your basis. As a result, the IRS will assume that your entire IRA balance consists of pre-tax money. When you later take distributions, the entire amount could be treated as taxable income.

This means you would pay income tax on the portion of the distribution that was simply a return of your original, after-tax contributions. You effectively lose the tax-free status of that money, paying tax on it once when you earned it and a second time when you withdraw it from your IRA.

Information Needed to Complete a Late Filing

Before you can fill out a past-due Form 8606, you must gather specific financial documents for each year the form was missed. You will need to obtain the correct version of Form 8606 for each specific year, as the form can change over time. The IRS website maintains an archive of prior-year forms and instructions.

You will need the following documents for each relevant year:

• Your filed tax return, Form 1040, for each of the missed years.
• Form 5498, IRA Contribution Information, which is sent by your IRA custodian and details the contributions you made for a given tax year.
• Form 1099-R, Distributions From Pensions, Annuities, Retirement Plans, IRAs, etc., if you took any distributions or performed a Roth conversion during the year. This form reports the gross amount of the distribution.
• Records showing the total value of all your traditional, SEP, and SIMPLE IRAs as of December 31 of the year in question, which is necessary for calculations.
• Your last correctly filed Form 8606, which shows your previously established IRA basis that carries over from year to year.

The Process for Submitting a Late Form 8606

Once you have gathered the necessary information and completed the correct, year-specific Form 8606, the submission process depends on whether the late form changes your tax liability. If the missing form does not alter the tax you owed—for instance, you only made a nondeductible contribution but took no distributions—you can file Form 8606 by itself. You should sign and date the form and mail it to the IRS service center where you would normally file a paper tax return.

If the missing Form 8606 does change your tax liability, you must file it along with an amended tax return, Form 1040-X. This would be the case if you took a distribution and the late form proves that a portion of it was non-taxable, resulting in a refund. The completed Form 8606 is attached to the Form 1040-X, which explains the changes to your income and tax.

When submitting the late form, whether by itself or with a Form 1040-X, it is advisable to attach a brief letter explaining why you are filing late. In this statement, you can request that the penalty be waived for “reasonable cause.” An explanation could be that you were previously unaware of the filing requirement and are now voluntarily correcting the record.