Roth IRA Conversion & Form 8606

What Is a Roth IRA Conversion?

A Roth IRA conversion moves funds from a traditional, SEP, or SIMPLE IRA into a Roth IRA. Qualified Roth withdrawals are tax-free in retirement, and there is no income limit on who can convert. Your financial institution will issue a Form 1099-R for the conversion year. Note that once a conversion is completed, it cannot be reversed.

Nondeductible IRA vs. Traditional IRA

A nondeductible IRA is not a separate account type. It is simply a traditional IRA funded with after-tax dollars. Both follow the same contribution limits and RMD rules. The difference is in the tax treatment:

• Deductible Traditional IRA: Contributions lower your taxable income upfront. The entire withdrawal — contributions and earnings — is taxed.
• Nondeductible Traditional IRA: Contributions are made with after-tax money. On withdrawal, only the earnings are taxed — your basis comes out tax-free.

When converting to Roth, the nondeductible portion (your basis) should not be taxed again. But without Form 8606 on file, the IRS treats all traditional IRA funds as pre-tax — and you could end up paying tax twice on the same money.

Pro-Rata Rule: If you have both pre-tax and after-tax money across your traditional IRAs, conversions are taxed proportionally. You cannot cherry-pick only the after-tax portion. The IRS aggregates all your traditional, SEP, and SIMPLE IRAs into one pool for this calculation (Publication 590-B).

Why Form 8606 Matters

IRS Form 8606 is required when you make nondeductible IRA contributions, convert to a Roth IRA, or take distributions from IRAs with after-tax basis.

• Tracks Your Basis: Form 8606 is your only record of after-tax contributions across all traditional IRAs. Without it, you have no proof of basis.
• Reports Conversions: Part II calculates how much of a Roth conversion is taxable based on your basis.
• Prevents Double Taxation: Proper basis tracking ensures you are not taxed again on money you already paid tax on.

Forgot to File Form 8606?

If you missed filing Form 8606 in prior years, take corrective action now. The IRS charges a $50 penalty per missed filing, but it can be waived for reasonable cause.

• Amend Prior Returns: File Form 1040-X for each missed year with the corresponding Form 8606 attached. Amendments are generally accepted within 3 years of the original filing date or 2 years from when the tax was paid, whichever is later.
• File Form 8606 Alone: If you did not need to file a tax return that year, you can submit a signed Form 8606 by itself.
• Use the Right Year's Form: Each tax year requires its own version of Form 8606. Prior-year forms are available on the IRS website.
• Penalty Waiver: You can request a waiver of the $50 penalty by showing reasonable cause.
• Accuracy Matters: Overstating nondeductible contributions carries a separate $100 penalty. Double-check your basis amounts when correcting prior filings.

What You Should Do

If you did a Roth conversion or made nondeductible IRA contributions:

• Collect all 1099-R forms from your financial institutions.
• Check whether you have after-tax basis in any traditional, SEP, or SIMPLE IRA.
• Review prior returns to confirm Form 8606 was filed each year it was required.

IRS Resources

Official IRS guidance:

• About Form 8606 — Nondeductible IRAs
• Instructions for Form 8606
• Publication 590-A — Contributions to IRAs
• Publication 590-B — Distributions from IRAs
• IRS Retirement Plans FAQs — IRAs