Form 8606 reports nondeductible (after-tax) basis in IRAs and certain plan-to-Roth-IRA rollovers. It is most relevant to the in-service-distribution path of the Mega Backdoor Roth, where after-tax basis leaves your 401(k) and lands in a Roth IRA. This is an orientation, not a substitute for the official instructions or a CPA.
Always work from the current-year official source: About Form 8606 and IRS Publication 590-A. Line numbers and wording change between tax years, so verify against the form for your filing year before relying on anything here.
When you do — and do not — need it
- In-plan Roth conversion: generally you do not file Form 8606 for the in-plan rollover itself — the conversion happens inside the plan and is reported on a 1099-R. (You may still file 8606 for unrelated nondeductible IRA activity.)
- In-service distribution to a Roth IRA: Form 8606 is where the after-tax basis you rolled into the Roth IRA is documented, so the earnings portion is taxed and the basis portion is not double-counted.
How the pieces reconcile
The core idea is a clean split: the dollars you contributed after-tax are basis and come out tax-free; the dollars they earned before conversion are taxable as ordinary income. Form 8606, together with the 1099-R you receive and the 5498 the Roth IRA custodian files, must agree on that split. If your 1099-R shows a gross distribution and a taxable amount, the taxable amount should reflect only the earnings — the after-tax basis is what 8606 protects.
Common pitfalls
- Forgetting the form entirely on the in-service path — the IRS then has no record of your basis, and the entire rollover can look taxable.
- Mixing pre-tax and after-tax in a single distribution. The pro-rata rules can apply if the after-tax money is not isolated; clean plans and direct rollovers avoid this.
- Letting earnings accrue before conversion, which enlarges the taxable portion. Frequent (ideally automatic) conversion keeps it small.
Because the exact lines depend on your filing year and your specific 1099-R coding, have a CPA or Enrolled Agent confirm the entries. This walkthrough is educational.