2025 Form 8606 - Nondeductable IRAs

Form 8606 is used for reporting nondeductible contributions to traditional Individual Retirement Accounts (IRAs). Specifically, it is used to report contributions to a traditional IRA for which you do not take a tax deduction.

Purpose of Form 8606:

Form 8606 is used to report:

1. Nondeductible contributions to traditional IRAs: If you contribute to a traditional IRA but cannot deduct the contribution on your tax return (due to income limits, participation in an employer-sponsored retirement plan, etc.), this contribution is considered "nondeductible." Form 8606 tracks this "basis" (your after-tax money) in your IRA. This is crucial to avoid paying taxes twice on the same money when you eventually take distributions.
2. Distributions from traditional, SEP, or SIMPLE IRAs with a basis: If you've ever made nondeductible contributions to these IRAs and you're taking a distribution, Form 8606 helps calculate the taxable and nontaxable portions of that distribution.
3. Conversions from traditional, SEP, or SIMPLE IRAs to Roth IRAs (Backdoor Roth): This is a common strategy for high-income earners who exceed the direct Roth IRA contribution limits. You make a nondeductible contribution to a traditional IRA and then convert it to a Roth IRA. Form 8606 is essential for documenting this conversion and ensuring that the conversion is largely tax-free (since you've already paid tax on the original contribution).
4. Distributions from Roth IRAs: Form 8606 helps determine if Roth IRA distributions are qualified (tax-free) or non-qualified (potentially taxable on earnings).

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