Form 8606 for a Backdoor Roth IRA (Nondeductible IRAs)

Form 8606 is used to report nondeductible contributions to an Individual Retirement Account (IRA) or if you’re engaging in a “backdoor Roth” strategy.

This form is filed with the IRS and is also used to keep track of your basis in a traditional IRA, Roth IRA, or SEP-IRA.

If you have ever made any nondeductible contributions to a traditional IRA, you will need to file Form 8606 with your tax return. This form is also used to keep track of your basis in a traditional IRA.

When Do I Need to File Form 8606?

You will need to file Form 8606 if any of the following apply to you:

  • You made nondeductible contributions to a traditional IRA for the tax year.
  • You received distributions from any IRA during the tax year.
  • You converted all or part of a traditional IRA to a Roth IRA during the tax year.

 

What Information Do I Need to File Form 8606?

To complete Form 8606, you will need:

  • Your name, address, and Social Security number
  • The name, address, and EIN of the IRA trustee or issuer
  • The amount of any nondeductible contributions you made to a traditional IRA for the tax year
  • The fair market value of your traditional IRA as of December 31st of the tax year
  • Any distributions you received from an IRA during the tax year
  • The amount of any conversion of a traditional IRA to a Roth IRA during the tax year

 

How Do I File Form 8606?

Form 8606 must be filed with your annual income tax return.

You can file Form 8606 electronically using IRS e-file or by mailing it to the address listed on Form 1040.

 

What Happens If I Don’t File Form 8606?

Failing to file a Form 8606 will create a tax liability. Form 8606 is used to keep track of your basis in a traditional IRA, Roth IRA, or SEP-IRA.

This form is also used to report nondeductible contributions to an Individual Retirement Account (IRA) or if you’re looking to do a “backdoor Roth” strategy.

You will need to pay taxes on the distributions you received from your IRA, as well as any conversion of a traditional IRA to a Roth IRA. You may also be subject to penalties and interest charges.

It’s important that you file Form 8606 correctly and on time to avoid any penalties or interest charges.

The penalty for filing a Form 8606 late is $50.

While there’s no time limit for a late or amended filing, if failing to file a Form 8606 resulted in immediate tax consequences (e.g., the full taxation of a Roth conversion), the amendment needs to be made before the three-year limitation on refunds.

If you have any questions about Form 8606, you should speak with a tax professional.

 

Is the Backdoor IRA Worth It?

If you are not eligible to contribute to a Roth IRA because your income is too high, you may be able to do a “backdoor Roth”.

This strategy allows you to make nondeductible contributions to a traditional IRA and then immediately convert those funds to a Roth IRA.

The backdoor Roth is a great way to get money into a Roth IRA if you otherwise wouldn’t be able to contribute (i.e., when you don’t qualify because your income is too high).

However, there are a few things you need to know before doing a backdoor Roth:

  • You must have no other IRAs (traditional or Roth) in order for the conversion to be valid.
  • You will owe taxes on any Traditional IRA contributions that have not yet been taxed.
  • The conversion could push you into a higher tax bracket.

If you’re thinking about doing a backdoor Roth, it’s important to speak with a tax professional to see if it makes sense for your situation.

Form 8606 can help you keep track of your basis in a traditional IRA and report any nondeductible contributions or conversion of a traditional IRA to a Roth IRA. This form is required in order to do a backdoor Roth.

For more information on Form 8606, please see the instructions on the IRS website.

 

Form 8606 – FAQs

What Is Form 8606?

Form 8606 is used to keep track of your basis in a traditional IRA, Roth IRA, or SEP-IRA.

This form is also used to report nondeductible contributions to an Individual Retirement Account (IRA) or if you’re looking to do a “backdoor Roth” strategy.

When is the Form 8606 required?

Form 8606 is not required when the taxpayer:

  • Has no basis in a traditional IRA.
  • Made only deductible contributions to a traditional IRA.
  • Made only Roth IRA contributions.
  • Is not taking any distributions from an IRA.
  • Is not converting any part of a traditional IRA to a Roth IRA.

What is a Backdoor Roth IRA?

A backdoor Roth IRA is a strategy that allows you to contribute to a Roth IRA even if your income is too high to qualify for the Roth IRA contribution limits.

To do a backdoor Roth, you first make a nondeductible contribution to a traditional IRA. Then, you immediately convert that money to a Roth IRA. Because you’ve already paid taxes on the contribution, there are no taxes due on the conversion.

This strategy can be complicated, so it’s important to speak with a tax professional before doing a backdoor Roth.

What is Form 8606 used for?

Form 8606 is used to keep track of your basis in a traditional IRA, Roth IRA, or SEP-IRA. This form is also used to report any nondeductible contributions or conversion of a traditional IRA to a Roth IRA.

What is the penalty for not filing Form 8606?

The penalty for not filing Form 8606 is $50.

Can Form 8606 be filed late?

Yes, Form 8606 can be filed late. However, you may owe penalties and interest if you don’t file on time.

It’s important to speak with a tax professional if you have any questions about Form 8606. They can help you determine if you need to file the form and how to do so correctly.

 

Summary – Form 8606

Form 8606 is used to keep track of your basis in a traditional IRA, Roth IRA, or SEP-IRA. This form is also used to report nondeductible contributions to an Individual Retirement Account (IRA) or if you’re looking to do a “backdoor Roth” strategy.

If you have ever made any nondeductible contributions to a traditional IRA, you will need to file Form 8606.

The Form 8606 is not required when the taxpayer:

  • Has no basis in a traditional IRA.
  • Made only deductible contributions to a traditional IRA.
  • Made only Roth IRA contributions.
  • Is not taking any distributions from an IRA.

 

 

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