IRS Instruction 8606 – Instructions for Form 8606, Nondeductible IRAs

IRS Instruction 8606 – Are you navigating the complexities of nondeductible IRA contributions, Roth conversions, or IRA distributions? IRS Form 8606 is a crucial tax document that helps you report these activities accurately to avoid penalties and ensure proper tax treatment. Whether you’re making after-tax contributions to a traditional IRA or handling a backdoor Roth IRA strategy, understanding the instructions for Form 8606 is essential for compliance in the 2025 tax year. This comprehensive guide breaks down everything you need to know, based on the latest IRS guidelines.

What Is IRS Form 8606 and Its Purpose?

IRS Form 8606, titled “Nondeductible IRAs,” is used to report nondeductible contributions to traditional individual retirement accounts (IRAs), distributions from traditional, SEP, or SIMPLE IRAs if you have a basis (after-tax amounts), conversions from traditional IRAs to Roth IRAs, and distributions from Roth IRAs. Nondeductible contributions are after-tax dollars you add to a traditional IRA without claiming a deduction on your tax return, which can help build a tax-free basis for future withdrawals.

The form ensures the IRS tracks your basis—essentially, the nontaxable portion of your IRA—to prevent double taxation on distributions. For instance, if you’ve made nondeductible contributions, Form 8606 calculates the taxable and nontaxable parts of any distributions using a pro-rata rule. This is particularly important for strategies like the backdoor Roth IRA, where high-income earners contribute to a traditional IRA and then convert to a Roth to bypass income limits. Without properly filing this form, you risk overpaying taxes or facing penalties.

Key purposes include:

  • Reporting nondeductible traditional IRA contributions (excluding employer contributions to SEP or SIMPLE IRAs).
  • Calculating the taxable amount of IRA distributions when you have a basis.
  • Documenting Roth IRA conversions and their nontaxable portions.
  • Tracking basis in Roth IRAs for qualified distributions.

For the 2025 tax year, the form also accounts for special distributions like qualified disaster recoveries, birth or adoption expenses, emergency expenses, domestic abuse victim distributions, and terminal illness distributions, which may be treated as rollovers if repaid.

Who Must File Form 8606?

Not everyone with an IRA needs to file Form 8606. You must submit it with your 2025 tax return (Form 1040, 1040-SR, or 1040-NR) if any of the following apply:

  • You made nondeductible contributions to a traditional IRA for 2025.
  • You received distributions from a traditional, SEP, or SIMPLE IRA in 2025 and have a basis greater than zero (after-tax contributions from prior years).
  • You converted any amount from a traditional, SEP, or SIMPLE IRA to a Roth IRA in 2025.
  • You received distributions from a Roth IRA in 2025 (other than rollovers, recharacterizations, or returns of certain contributions).
  • You transferred IRA assets to a spouse under a divorce or separation agreement, affecting your basis.
  • You received distributions from an inherited IRA with a basis, which may require multiple forms.

If you only made deductible contributions or have no basis, you typically report distributions directly on Form 1040 without Form 8606. However, always file if you have after-tax amounts to preserve your basis records—even if you’re not filing a full tax return, submit a standalone signed Form 8606 to the IRS.

For 2025, contribution limits are $7,000 ($8,000 if age 50 or older), with phase-out ranges based on modified adjusted gross income (MAGI). For traditional IRAs if covered by a workplace plan: $89,000–$99,000 for single/head of household, $146,000–$156,000 for married filing jointly. For Roth IRAs: $165,000–$175,000 for single, $246,000–$256,000 for married filing jointly.

Step-by-Step Instructions for Completing Form 8606

Form 8606 has three main parts. Use the IRS’s Total Basis Chart from prior years’ forms to track your basis accurately. Here’s a breakdown:

Part I: Nondeductible Contributions to Traditional IRAs and Distributions

This section is for reporting your after-tax contributions and calculating the taxable portion of distributions.

  • Line 1: Enter your 2025 nondeductible contributions to traditional IRAs (up to the limit, excluding employer SEP/SIMPLE contributions).
  • Line 2: Your basis from the end of 2024 (from last year’s Form 8606, line 14, or the Total Basis Chart).
  • Line 3: Total basis (lines 1 + 2).
  • Line 6: Value of all traditional IRAs as of December 31, 2025, plus outstanding rollovers.
  • Line 7: Total distributions in 2025 (excluding rollovers, QCDs, HSA funding, conversions, etc., but including certain repayable distributions).
  • Line 14: Your basis in traditional IRAs for 2025 and later (carry to next year’s line 2).
  • Line 15a–c: Taxable amount of distributions; use the Line 15c Worksheet for adjustments if you repaid qualified distributions.

If you’re under 59½, the taxable portion may trigger a 10% early withdrawal penalty on Form 5329.

Part II: 2025 Conversions from Traditional IRAs to Roth IRAs

Complete this if you converted to a Roth IRA.

  • Line 16: Amount converted.
  • Line 17: Basis allocable to the conversion.
  • Line 18: Nontaxable portion (pro-rata based on total IRA value).

The taxable amount goes on Form 1040, line 4b. Note: Conversions after 2017 cannot be recharacterized.

Part III: Distributions from Roth IRAs

For Roth distributions that aren’t qualified (e.g., before age 59½ or 5-year holding period).

  • Line 19: Gross distributions (excluding rollovers, etc.).
  • Line 22: Basis in regular Roth contributions (use the worksheet to calculate).
  • Line 23: Amount subject to 10% additional tax if early.
  • Line 24: Basis in conversions and rollovers (detailed table for historical excesses back to 1998).
  • Line 25a–c: Taxable amount; adjust using the Line 25c Worksheet for repayments.

Qualified Roth distributions (after 5 years and age 59½, death, disability, or first-time homebuyer up to $10,000) are tax-free.

Worksheets in the instructions help with complex calculations, such as the Maximum Roth IRA Contribution Worksheet and basis adjustments for repayments.

Reporting Nondeductible Contributions and Common Scenarios

To report nondeductible contributions, enter them on line 1 and attach Form 8606 to your return. This creates a paper trail for your basis, preventing taxation on the same money twice during distributions. For backdoor Roth IRAs:

  1. Contribute nondeductible amount to traditional IRA.
  2. Convert to Roth (report on Part II).
  3. File Form 8606 to document the nontaxable conversion.

Recharacterizations (treating a contribution as made to another type of IRA) require an explanatory statement but are limited for conversions post-2017.

For excess contributions, withdraw them by your tax due date (April 15, 2026, for 2025) to avoid a 6% penalty.

Recent Updates for Tax Years 2024 and 2025

The 2025 instructions include:

  • Updated references to Form 8915-F for 2024 and 2025 qualified disaster distributions and repayments, affecting lines 6, 7, 15b, 19, and 25b.
  • Increased MAGI phase-out limits as noted above.
  • Emphasis on repayments of special distributions (e.g., emergency expenses up to $1,000, domestic abuse up to $10,000) treated as rollovers.
  • Expanded basis calculation tables for line 24, incorporating data back to 1998 with 2025 rollovers.

Changes to the Line 25c Worksheet were noted in July 2025. Draft instructions were released in December 2025, with the final form available now.

Penalties for Not Filing Form 8606

Failing to file when required incurs a $50 penalty. Overstating nondeductible contributions can lead to a $100 penalty. Untimely excess contribution withdrawals trigger a 6% excise tax, and early distributions may add a 10% penalty. Always keep records of Forms 5498 (contributions) and 1099-R (distributions) for at least three years.

Tips for Filing Form 8606 Successfully

  • Track basis annually using the Total Basis Chart to avoid errors.
  • Use tax software like TurboTax for guided completion, especially for backdoor Roths.
  • Consult IRS Publications 590-A (Contributions) and 590-B (Distributions) for in-depth examples.
  • If inheriting an IRA, file separate forms for each.
  • Amend prior returns if you discover missed nondeductible contributions.
  • For complex situations, like multiple IRAs or disasters, seek a tax professional.

Filing deadline: Attach to your 2025 tax return due April 15, 2026 (or extension date).

Conclusion

Mastering IRS Form 8606 ensures you maximize the tax benefits of nondeductible IRAs while staying compliant. By reporting accurately, you protect your retirement savings from unnecessary taxes. For the most current details, visit the IRS website or consult a tax advisor. Start preparing early to make your 2025 tax filing seamless.