📘 Understanding Form 8606 — Your Key to Nondeductible IRA and Roth Conversions (2025 Guide)
Did you know you can still contribute to an IRA even when your income is too high for deductions? That’s where Form 8606 comes in. This often-overlooked IRS form helps you track your after-tax IRA money and avoid double taxation when you withdraw or convert to a Roth IRA.
Let’s break down how it works — in plain English — under the 2025 tax rules.
1️⃣ What Is Form 8606 and Why It Matters
Form 8606 (Nondeductible IRAs) is an IRS form that tracks any after-tax money in your Traditional IRA and reports Roth IRA conversions.
It keeps a clear record of what portion of your IRA balance has already been taxed — preventing the IRS from taxing it again later.
The form protects your tax-free basis and documents your Roth conversions properly.
2️⃣ When You Must File Form 8606
- You made a nondeductible (contribution) to a Traditional IRA because your income was too high for a deduction.
- You converted funds to a Roth IRA (even a small amount).
- You withdrew money from a Roth IRA and part of it might be taxable (5-year rule applies).
3️⃣ Understanding Your “Basis” in an IRA
Your basis is the portion of your IRA that’s already been taxed — usually the amount you contributed without claiming a deduction.
When you take money out, that basis comes out tax-free, while earnings and deductible amounts remain taxable.
In 2025, Emma earns too much to deduct her Traditional IRA contribution but still invests $7,000 after tax.
She files Form 8606 to record her basis.
Years later, her account is worth $12,000.
Only the $5,000 of growth is taxed when withdrawn — the original $7,000 is completely tax-free.
4️⃣ Form 8606 and Roth Conversions
Whenever you convert money from a Traditional IRA to a Roth IRA, Form 8606 calculates how much of the conversion is tax-free (basis) and how much is taxable.
This is crucial for the popular Backdoor Roth IRA strategy, where high-income taxpayers first make a nondeductible IRA contribution and then convert it to a Roth.
1️⃣ Contribute after-tax money to a Traditional IRA (no deduction).
2️⃣ File Form 8606 to report the basis.
3️⃣ Convert the funds to a Roth IRA soon after — so there’s little to no tax on the conversion.
5️⃣ Real-Life Example
David, a New Jersey engineer, contributed $7,000 to a Traditional IRA in 2025 but couldn’t deduct it due to his high MAGI.
He filed Form 8606 to record it as after-tax money.
Two years later he converted the account, now worth $8,000, to a Roth IRA.
Only the $1,000 of growth was taxable — the rest was already tax-paid basis.
6️⃣ Filing Tips & Common Mistakes
- Always attach Form 8606 to your Form 1040 when filing for the year you made the contribution or conversion.
- Keep copies of past forms — they carry forward your basis each year.
- Don’t forget the pro-rata rule if you have other Traditional IRAs — the IRS considers all IRAs together for tax purposes.
- If you missed filing Form 8606 in a prior year, you can still file it separately retroactively.
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📖 External Reference: IRS Form 8606 — Nondeductible IRAs (Official Page)
핑백: Income Tax Reporting for Ministers