Form 8606


DEFINITION of 'Form 8606'

A tax form distributed by the Internal Revenue Service (IRS) and used by filers who make nondeductible contributions to an IRA. A separate form should be filed for each tax year that nondeductible contributions are made.

Form 8606 is also required whenever: 1) a taxpayer converts a Traditional or SEP IRA into a Roth IRA, or 2) receives an IRA distribution that is attributable to previous nondeductible contributions. If 8606 is not filed in a distribution year, the taxpayer is likely to be forced to pay income taxes (and possibly penalties) on what could be tax-free monies.


Form 8606 should be filed in conjunction with the standard income tax forms (1040, 1040A, or 1040NR) for individual filers. Any taxpayer with a cost basis above zero for IRA assets (a combination of post-tax and pretax contributions, or deductible and nondeductible contributions) should use Form 8606 to prorate the taxable vs. nontaxable distribution amounts.

Younger investors should consider "recharacterizing" Traditional and SEP IRA assets as Roth assets; the tax hit may be outweighed over time by not having to pay taxes on future distributions, which should theoretically have more value due to inflation.

  1. Inflation

    The rate at which the general level of prices for goods and services ...
  2. Income Tax

    A tax that governments impose on financial income generated by ...
  3. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  4. Tax Deferred

    Investment earnings such as interest, dividends or capital gains ...
  5. Catch-Up Contribution

    A type of retirement savings contribution that allows people ...
  6. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
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  1. When can catch-up contributions start?

    Most qualified retirement plans such as 401(k), 403(b) and SIMPLE 401(k) plans, as well as individual retirement accounts ... Read Full Answer >>
  2. Who can make catch-up contributions?

    Most common retirement plans such as 401(k) and 403(b) plans, as well as individual retirement accounts (IRAs) allow you ... Read Full Answer >>
  3. Can you have both a 401(k) and an IRA?

    Investors can have both a 401(k) and an individual retirement account (IRA) at the same time, and it is quite common to have ... Read Full Answer >>
  4. Are 401(k) contributions tax deductible?

    All contributions to qualified retirement plans such as 401(k)s reduce taxable income, which lowers the total taxes owed. ... Read Full Answer >>
  5. Are 401(k) rollovers taxable?

    401(k) rollovers are generally not taxable as long as the money goes into another qualifying plan, an individual retirement ... Read Full Answer >>
  6. Are catch-up contributions included in the 415 limit?

    Unlike regular employee deferrals, catch-up contributions are not included in the 415 limit. While there is an annual limit ... Read Full Answer >>

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