If you have ever made nondeductible contributions to an IRA, SEP IRA, or SIMPLE IRA, you’ll also need to use Form 8606 to report any distributions you take from these accounts, along with all Roth IRA distributions. Form 8606 isn’t required when you contribute to a Roth IRA, because those contributions are never tax-deductible, but the form is required if you convert a traditional IRA, SEP, or Simple IRA to a Roth IRA.
Who Uses IRS Form 8606?
You’ll need to file form 8606 if any of the following applied to you during the tax year:
You made nondeductible contributions to any traditional IRAs.You took distributions from any traditional, SEP, or SIMPLE IRA to which you have ever made any nondeductible contributions.You took distributions from a Roth IRA.You converted any amount from a traditional, SEP, or SIMPLE IRA to a Roth IRA.
How To Fill Out and Read Form 8606
To fill out Form 8606, gather your information about any nondeductible contributions you made during the tax year, along with the total basis you’ve built up in previous years (Line 14 from your most recent Form 8606). If you have made any previous nondeductible contributions, you’ll also need to document any conversions from traditional, SEP, or SIMPLE IRAs (Part II) to Roth IRAs, as well as any distributions from Roth IRAs (Part III).
Where To Mail Form 8606
If you file by mail, send Form 8606 with Form 1040, your tax payment, and any other relevant tax forms, postmarked on or before the annual filing deadline, to the IRS processing office for your state.
Requirements for Filing Form 8606
File Form 8606 with your annual tax return, which is usually due on or around April 15 each year. You can file it by mail or online. Technically, the penalty for filing a late Form 8606 is $50, but the IRS is willing to waive this penalty if you can show reasonable cause for the delay.
Tax Rules for IRA Contributions
The IRS limits your deductible contributions if you or your spouse are covered by a retirement plan through your employer, and it also limits the overall amounts you can contribute and deduct. You can only make annual deductible contributions of up to $6,000 in tax year 2022 (up to $7,000 if you’re age 50 or older). The contribution limit for tax year 2023 (the return you will file in 2024), is $6,500 ($7,500 for age 50 or over). This limit for deductible contributions begins dropping, however, if you are covered by a retirement plan at work and if your modified adjusted gross income (MAGI) is more than $68,000 in the 2022 tax year, or $73,000 in the 2023 tax year, and your filing status is single. For the 2022 tax year, this increases to $109,000 if you’re married and file a joint return with your spouse (if a retirement plan at work covers either of you), but it plummets to $10,000 if you’re married and file a separate return. In 2023, these thresholds are $116,000 and $10,000, respectively. For tax year 2022, you’re disqualified entirely from claiming deductible contributions if you’re covered by a retirement plan at work and your MAGI is $78,000 or more in 2022 and you’re single; $129,000 or more if you’re married and filing jointly; or $10,000 if you’re married and file a separate return. For tax year 2023, those thresholds move up to $83,000, $136,000, and $10,000, respectively. You can contribute money in excess of these rules or if you don’t qualify due to your income, but you must do so with after-tax dollars and fill out Form 8606, and you are still subject to annual contribution limits.
