IRS 8606 Instructions: How to Complete the Form

Form 8606, Nondeductible IRAs, is an Internal Revenue Service (IRS) form used to report specific transactions related to your Individual Retirement Arrangements (IRAs). Its main purpose is to track your after-tax contributions, known as your “basis,” to ensure those funds are not taxed again upon withdrawal. This form is necessary for reporting nondeductible contributions, certain distributions, and conversions involving your IRAs.

Who Must File Form 8606

You must file Form 8606 if you engaged in specific IRA activities during the tax year. Filing is required if you made nondeductible contributions to a traditional IRA. This establishes a record of your cost basis, even if you also made deductible contributions to another IRA.

You also file if you took distributions from a traditional, SEP, or SIMPLE IRA, but only if you have ever made nondeductible contributions to any traditional IRA. For this calculation, all of your traditional, SEP, and SIMPLE IRAs are treated as a single account. Another trigger for filing is converting funds from a traditional, SEP, or SIMPLE IRA to a Roth IRA. Finally, taking a distribution from a Roth IRA or an inherited IRA with a basis requires you to file Form 8606.

Information and Calculations Needed Before Filling Out the Form

Before completing Form 8606, you should gather specific documents and calculate key figures. Having this information ready will ensure accuracy. You will need the following:

• Your most recently filed Form 8606 to find your total basis from prior years, located on line 14. If this is your first time making a nondeductible contribution, your prior-year basis is zero.
• Form 5498, IRA Contribution Information, from your IRA custodian. This form reports all contributions you made during the tax year.
• Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., if you took distributions or made conversions.
• The total value of all your traditional, SEP, and SIMPLE IRAs as of December 31 of the tax year, which is often on your year-end IRA statement.

You should also determine the total nondeductible contributions you made for the year and the total amount of any distributions or conversions.

Step-by-Step Guide to Completing Form 8606

Form 8606 is divided into three parts. You only need to complete the sections that apply to your specific IRA transactions for the year.

Part I: Nondeductible Contributions and Distributions

This part is for reporting nondeductible contributions and calculating the taxable portion of distributions from traditional, SEP, or SIMPLE IRAs. Enter your nondeductible contributions for the tax year on Line 1. On Line 2, enter your total basis from prior years, found on Line 14 of your previous Form 8606.

If you took no distributions, add Lines 1 and 2 and enter the total on Lines 3 and 14; this becomes your new basis to carry forward. If you did take distributions, you must complete the rest of Part I. Enter the total value of all your traditional, SEP, and SIMPLE IRAs as of December 31 on Line 6, and on Line 7, enter the total distributions you received. The form uses these figures to calculate the nontaxable portion of your distribution, with the final taxable amount from Line 15c transferred to your Form 1040.

Part II: Roth Conversions

Use Part II to report conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs and determine the taxable amount. On Line 16, enter the net amount you converted, which is found on your Form 1099-R. You will enter your basis in the converted amount on Line 17, a figure often carried over from Part I. The taxable amount of your conversion is calculated on Line 18 by subtracting your basis from the total conversion amount and is then reported on your Form 1040.

Part III: Distributions From Roth IRAs

Part III is for distributions from Roth IRAs and determines if any portion is taxable. Begin on Line 19 by entering the total nonqualified distributions you received. You will need to determine your basis in both Roth IRA contributions and conversions. Enter your basis in contributions on Line 22 and your basis in conversions on Line 24. The form then calculates the nontaxable portion of your distribution, with any taxable earnings from Line 25c reported on your Form 1040.

Filing and Record-Keeping Requirements

After completing Form 8606, attach it to your annual income tax return, such as Form 1040, 1040-SR, or 1040-NR. The filing deadline for Form 8606 is the same as your tax return’s due date, including extensions.

You may be required to file Form 8606 by itself even if you do not have to file a federal income tax return. This can occur if you had a Roth IRA distribution. In this case, complete and sign Form 8606, then mail it to the IRS using the address for your tax return.

Maintaining thorough records of your nondeductible IRA contributions is necessary to prove your basis in future years. You should keep a copy of every Form 8606 you file, as these document your IRA basis. Also retain copies of Form 5498, Form 1099-R, and the first page of your Form 1040 for any year you made a nondeductible contribution.