IRS Form 8606

Practical overview

Form 8606 is one of the most-skipped forms because there is no immediate dollar penalty: tax flows through Form 1040 either way. But missing 8606 filings cause double taxation later when distributions or conversions trigger tax that should have been offset by basis. The 'backdoor Roth' strategy depends entirely on a properly filed Form 8606 to avoid double taxation on the conversion.

Practical steps

• File Form 8606 for any year with a nondeductible traditional IRA contribution.
• Maintain a running total of basis across all traditional IRAs (aggregation rule).
• File Form 8606 for any Roth conversion.
• Keep prior-year Form 8606 copies to support basis on future distributions.

Due-date notes

Penalty snapshot

$50 per missing form ($100 minimum) for overstating nondeductible contributions, plus risk of double taxation on subsequent distributions.