IRS Form 8606 – Nondeductible IRAs

IRS Form 8606 – In the world of retirement planning, Individual Retirement Accounts (IRAs) offer powerful tax advantages, but not all contributions are created equal. If you’ve made nondeductible contributions to a traditional IRA or dealt with Roth IRA conversions, IRS Form 8606 is essential for accurate reporting and avoiding double taxation. This form helps track your IRA basis, calculate taxable distributions, and ensure compliance with IRS rules. Whether you’re navigating backdoor Roth strategies or simply managing after-tax contributions, understanding Form 8606 can save you time, money, and potential penalties. In this guide, we’ll break down everything you need to know about IRS Form 8606 for the 2025 tax year, including who must file, how to complete it, and recent updates.

What Is IRS Form 8606?

IRS Form 8606, titled “Nondeductible IRAs,” is a tax form used to report specific IRA-related activities that involve after-tax contributions or conversions. Its primary purposes include:

  • Reporting nondeductible contributions to traditional IRAs (these are contributions you make without claiming a tax deduction, often due to income limits).
  • Tracking the basis in your traditional, SEP, or SIMPLE IRAs to determine the taxable portion of distributions.
  • Reporting conversions from traditional IRAs to Roth IRAs.
  • Calculating the taxable amount of distributions from Roth IRAs.

Without this form, you risk paying taxes twice on the same money—once when contributing (since it’s after-tax) and again upon withdrawal. Form 8606 ensures the IRS recognizes your nondeductible basis, making part of your future distributions tax-free. It’s particularly crucial for high-income earners using strategies like the backdoor Roth IRA, where nondeductible traditional IRA contributions are converted to Roth IRAs to bypass income limits.

Who Needs to File IRS Form 8606?

Not everyone with an IRA needs to file Form 8606. You must submit it if any of the following apply for the 2025 tax year:

  • You made nondeductible contributions to a traditional IRA (excluding employer contributions to SEP or SIMPLE IRAs).
  • You received distributions from a traditional, SEP, or SIMPLE IRA and have a basis greater than zero from prior nondeductible contributions.
  • You converted any amount from a traditional, SEP, or SIMPLE IRA to a Roth IRA.
  • You received distributions from a Roth IRA (other than rollovers, recharacterizations, or returned contributions).
  • You transferred IRA assets under a divorce or separation agreement that affects your basis.
  • You received distributions from an inherited IRA with a basis.

If you’re married filing jointly and both spouses meet these criteria, each must file a separate Form 8606. Note that regular Roth IRA contributions (which are always nondeductible) don’t require filing just for reporting them, but you must keep records. Always consult a tax professional if you’re unsure, as failing to file can lead to penalties.

When and Where to File Form 8606?

File Form 8606 with your 2025 federal income tax return (Form 1040, 1040-SR, or 1040-NR) by the due date, including extensions—typically April 15, 2026, for most taxpayers. If you don’t need to file a tax return but are required to submit Form 8606 (e.g., only to report nondeductible contributions), sign it and mail it to the IRS address listed in your tax return instructions.

For contributions: The deadline for 2025 IRA contributions is April 15, 2026. If you make contributions between January 1 and April 15, 2026, designate them for 2025 and include them on your 2025 Form 8606.

To navigate Form 8606 effectively, familiarize yourself with these essential terms:

  • Nondeductible Contributions: After-tax contributions to a traditional IRA that you don’t deduct on your tax return. These establish your “basis” and aren’t taxable upon withdrawal.
  • Basis: The total amount of nondeductible contributions and certain nontaxable rollovers in your IRA. It’s used to calculate the tax-free portion of distributions.
  • Traditional IRA: Includes traditional SEP and SIMPLE IRAs. Contributions may be deductible or nondeductible based on income and retirement plan coverage.
  • Roth IRA: Includes Roth SEP and SIMPLE IRAs. Contributions are always nondeductible, but qualified distributions are tax-free.
  • Conversion: Transferring funds from a traditional IRA to a Roth IRA, which is taxable except for the basis portion.
  • Qualified Distribution: From a Roth IRA, tax-free if held for five years and you’re 59½ or older, disabled, deceased, or using up to $10,000 for a first-time home purchase.

Understanding these helps avoid common pitfalls, like overpaying taxes on distributions.

How to Fill Out IRS Form 8606: Step-by-Step Guide?

Form 8606 has three main parts. Complete only the sections that apply to you. Here’s a breakdown based on the 2025 form structure:

Part I: Nondeductible Contributions to Traditional IRAs and Distributions

This part tracks your basis and calculates taxable distributions.

  1. Line 1: Enter your 2025 nondeductible contributions to traditional IRAs.
  2. Line 2: Enter your basis from prior years (use the Total Basis Chart in instructions).
  3. Line 3: Add lines 1 and 2.
  4. Lines 4-5: Adjust for contributions made in early 2026 designated for 2025.
  5. Line 6: Enter the year-end value of all traditional IRAs plus outstanding rollovers, minus certain repayments (e.g., qualified disaster distributions).
  6. Line 7: Enter 2025 distributions from traditional IRAs (exclude rollovers, QCDs, etc.).
  7. Line 8: Enter amounts converted to Roth IRAs (also on line 16).
  8. Lines 9-13: Calculate the nontaxable portion using ratios.
  9. Line 14: Your updated basis for future years.
  10. Line 15a-c: Taxable amount of distributions; report on Form 1040 line 4b if positive.

Part II: 2025 Conversions From Traditional IRAs to Roth IRAs

For conversions (e.g., backdoor Roth):

  1. Line 16: Enter the converted amount.
  2. Line 17: Enter the basis in the converted amount.
  3. Line 18: Subtract line 17 from 16; this is taxable (report on Form 1040 line 4b).

Part III: Distributions From Roth IRAs

For Roth withdrawals:

  1. Line 19: Enter nonqualified distributions.
  2. Line 20: Enter qualified first-time homebuyer expenses (up to $10,000).
  3. Lines 21-22: Adjust for basis in contributions.
  4. Line 23: Taxable amount before further basis.
  5. Line 24: Enter basis in conversions and rollovers (use the chart in instructions).
  6. Line 25a-c: Final taxable amount; report on Form 1040 line 4b if positive.

Use worksheets in the instructions for complex calculations, such as those involving qualified disaster distributions or repayments. Tax software like TurboTax can automate this, but double-check for accuracy.

Common Scenarios Requiring Form 8606

  • Backdoor Roth IRA: Contribute nondeductible to a traditional IRA, then convert to Roth. Report the contribution in Part I and conversion in Part II. The conversion is mostly tax-free if no earnings accrue.
  • IRA Distributions: If you have basis, use Part I or III to prorate taxable vs. nontaxable amounts.
  • Inherited IRAs: File a separate form if the inherited IRA has basis.
  • Excess Contributions: If not corrected, report and pay 6% excise tax via Form 5329.

Penalties for Errors or Not Filing Form 8606

  • Failure to File: $50 penalty if you don’t report nondeductible contributions.
  • Overstating Nondeductible Contributions: $100 penalty.
  • Early Distributions: 10% additional tax (25% for SIMPLE IRAs in first two years) on taxable portions if under 59½.

Waivers may apply for reasonable cause, but accurate record-keeping is key.

Recent Changes and Updates for 2025

For 2025, key updates include:

  • Increased modified AGI limits for traditional IRA deductions: Up to $146,000 for married filing jointly (or qualifying surviving spouse), $89,000 for single/head of household.
  • Roth IRA contribution phaseouts: Up to $246,000 for married filing jointly.
  • Clarifications on nondeductible contributions excluding employer SEP/SIMPLE contributions.
  • Basis adjustments for repayments of certain distributions (e.g., emergency expenses, domestic abuse).
  • References to Form 8915-F for qualified disaster distributions.

Roth SEP and SIMPLE IRAs, available since 2023, are now fully integrated into definitions.

Where to Download IRS Form 8606?

You can download the official PDF of Form 8606 directly from the IRS website: https://www.irs.gov/pub/irs-pdf/f8606.pdf. For instructions, visit https://www.irs.gov/instructions/i8606.

Final Tips for Managing Nondeductible IRAs

IRS Form 8606 is your safeguard against overpaying taxes on IRAs. Keep detailed records of contributions, distributions, and conversions—use the Total Basis Chart to track year-over-year. If your situation involves multiple IRAs or complex transactions, consider consulting a certified tax advisor or financial planner. By staying compliant, you maximize the benefits of nondeductible IRAs and Roth conversions for a tax-efficient retirement.

Remember, tax laws evolve, so always verify with the latest IRS guidance for your specific circumstances.