Form 8606📋 You File This

Nondeductible IRAs

How to Report a 401(k) Rollover on Form 8606

Form 8606 tracks the after-tax (non-deductible) basis in traditional IRAs, calculates the taxable and non-taxable portions of Roth conversions under the pro-rata rule, reports Roth conversion amounts, and documents qualified and non-qualified Roth IRA distributions. It is the IRS's mechanism for preventing double taxation of IRA assets that were originally contributed on an after-tax basis.

You FileFiling Role

Apr 15Issued / Due

IndefinitelyRetention

NoIRS Matching

RequiredRoth Relevant

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You File Form 8606 — It Is Not Issued to YouForm 8606 is completed by the taxpayer and attached to Form 1040. It is your responsibility to file it correctly in every applicable year. Failure to file in a required year carries a $50 IRS penalty — and potentially much larger tax costs for missing basis documentation.

1Form 8606 — Overview & Purpose

Form Profile — Form 8606

Formal Name: Nondeductible IRAs
Who Issues It: The taxpayer completes and files Form 8606 — it is not issued by anyone. The taxpayer is solely responsible for tracking their IRA basis and completing the form each year that a relevant transaction occurs.
Who Receives It: The IRS receives Form 8606 as an attachment to Form 1040. The taxpayer retains a copy. The cumulative IRA basis information carried forward on Form 8606 is one of the most critical pieces of retirement tax documentation — it must be maintained annually.
Issuance / Due Date: Form 8606 is filed with Form 1040 by April 15 (or October 15 with extension). There is also a standalone filing option: if Form 8606 is required but Form 1040 is not (rare edge case), it can be filed separately with a $50 penalty for failure to file.
Retention Period: Retain Form 8606 from every year it was filed — indefinitely for Roth IRA accounts. The cumulative basis tracked across years of Form 8606 is the documentation that prevents double taxation on future IRA distributions. Loss of Form 8606 history means the IRS will tax 100% of all IRA distributions as ordinary income.
Filer Role: taxpayer — files Form 8606 as an attachment to Form 1040
Reported On Tax Return: Attached to Form 1040; the taxable amount calculated on Form 8606 flows to Form 1040 Lines 4b (IRA distributions) or 5b (pension/annuity distributions) depending on the account type
Filing Deadline: April 15 (October 15 with extension). Failure to file when required carries a $50 penalty per occurrence — but the more costly consequence is the IRS treating 100% of future IRA distributions as taxable for lack of basis documentation.

Form 8606 is required in any year where: (1) a non-deductible IRA contribution is made; (2) a Roth conversion is executed; (3) a distribution is taken from a traditional IRA that contains non-deductible contributions; or (4) a non-qualified distribution is taken from a Roth IRA. For straightforward direct rollovers between pre-tax accounts (401k to traditional IRA with no existing basis), Form 8606 is not required.

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Additional Forms Triggered by Form 8606

Form 1040 (Line 4b or 5b for the taxable IRA/conversion amount from Form 8606)
Form 5329 (if early distribution penalty applies to the taxable portion of a Roth distribution)

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Regulatory Authority

There is no statute of limitations on the IRS's ability to tax IRA distributions as 100% ordinary income if no Form 8606 basis documentation exists. If you contributed to a non-deductible IRA in any year and did not file Form 8606, you can file a late Form 8606 now — the IRS allows late filings for basis documentation, with a $50 penalty per late form. This is almost always worth doing: $50 to document $10,000 in basis that would otherwise be taxed is a favorable trade.

📘 IRS Publication 590-A (Contributions to IRAs) — Form 8606, Part I instructions
📘 IRS Publication 590-B (Distributions from IRAs) — Form 8606, Parts II and III instructions
⚖ IRC Section 408(d)(2) (pro-rata rule for IRA distributions)

🔍 Expert Insight

The pro-rata rule on Form 8606 Part II is the most important tax calculation in Roth conversion planning — and the one most frequently misunderstood. The rule does not allow selective withdrawal of after-tax IRA basis: if you have $10,000 of non-deductible contributions in a $100,000 traditional IRA and convert $50,000 to a Roth IRA, only $5,000 of the conversion is non-taxable (10% of the conversion, because basis represents 10% of the total IRA value). You cannot 'convert just the basis.' The entire traditional IRA balance — across all traditional, SEP, and SIMPLE IRAs — is the denominator. This is why the reverse rollover (moving pre-tax IRA money into a 401k before a Roth conversion) is such a powerful planning tool: it removes the pre-tax denominator from the calculation.

2401(k) — Account-Specific Rules

Separation from the sponsoring employer (termination, resignation, retirement, or layoff). Some plans allow in-service distributions at age 59½ or older.

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Tax Treatment

Pre-Tax

Pre-tax (traditional) or post-tax (Roth 401(k) if plan offers it)

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Distribution Form

Form 1099-R

The plan administrator issues a check made payable directly to the new custodian (e.g., 'Fidelity FBO John Smith'). The mandatory 20% federal withholding does NOT apply to direct rollovers. This is the IRS-preferred method.

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Contribution Form

Form 5498

Confirms rollover contributions to the custodian.

Eligibility to roll over a 401(k) is almost always tied to a triggering event: leaving the employer, reaching age 59½ (for in-service distributions), or plan termination. The plan document governs — not the IRS alone. Some plans allow partial distributions; most require a full lump-sum upon separation.

3How to Report Your 401(k) Rollover on Form 8606

Follow these steps to correctly report your 401(k) rollover on Form 8606. Each scenario (direct rollover, indirect rollover, Roth conversion) has its own reporting path.

Step 1

Gather Source DocumentsCollect your 401(k) distribution documents: Form 1099-R from the sending institution, your rollover receipt confirmation, and any applicable custodian statements from the receiving IRA.

Step 2

Direct Rollover ReportingA direct rollover from a qualified plan to a traditional IRA does not require Form 8606 in the year of the rollover — unless the IRA already contained non-deductible contributions. However, the rollover increases the traditional IRA balance, which affects the pro-rata denominator for any future Roth conversions. This indirect effect is why large 401(k) rollovers to a traditional IRA can 'dilute' existing non-deductible IRA basis and make future Roth conversions more expensive.

Step 3

Indirect / 60-Day Rollover ReportingSame as direct rollover — Form 8606 is not required solely because of the rollover itself. Required only if the IRA contained non-deductible contributions before or after the rollover.

Step 4

Roth Conversion ReportingForm 8606 Part II is required for every Roth conversion. Line 6: total value of all traditional IRAs at December 31 (the denominator). Line 7: the outstanding basis in non-deductible contributions (the numerator component). Line 10: the non-taxable portion of the conversion. Line 18: the taxable portion, which flows to Form 1040 as ordinary income.

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Pro-Rata Rule — Form 8606 Part IIThe pro-rata rule applies to all Roth conversions from traditional IRAs. You cannot selectively convert only after-tax basis — every conversion is a proportional mix of pre-tax and after-tax amounts. The formula: (total basis ÷ total year-end IRA value) × conversion amount = non-taxable portion. All traditional, SEP, and SIMPLE IRA balances are aggregated in the denominator.

4Form 8606 — Box-by-Box Field Guide

The following fields on Form 8606 are most relevant to 401(k) rollover transactions. Verify each field against your actual form.

Part INondeductible Contributions

Used when making non-deductible (after-tax) traditional IRA contributions. Line 1: current year non-deductible contribution. Line 2: total basis from prior years (from prior Form 8606 Line 14). Line 3: total basis. Line 14: remaining basis carried forward to next year. This cumulative tracking is the core purpose of the form.

Part IIConversions from Traditional, SEP, or SIMPLE IRAs to Roth IRAs

Line 6: year-end fair market value of all traditional IRAs (from Form 5498 Box 5 when received, or from year-end account statements). Line 8: net amount converted to Roth. Line 10: non-taxable portion = (Line 3 basis ÷ Line 9 combined value) × Line 8 conversion. Line 18: taxable Roth conversion amount flowing to Form 1040.

Part IIIDistributions from Roth IRAs

Used when taking distributions from a Roth IRA before age 59½ or before the 5-year holding period is satisfied. Calculates the ordering rules: contributions come out first (tax-free), then conversions (tax-free if 5-year holding period met), then earnings (taxable and potentially penalized).

Line 14Outstanding Basis Carryforward

The most important single line on Form 8606 for multi-year tracking. This is the remaining non-deductible basis that has not yet been recovered through distributions or conversions. It is carried forward to the following year's Form 8606 Line 2. Losing this number means losing the documentation of after-tax contributions.

5401(k) — Specific Behavior on Form 8606

📌 Account-Specific Logic

Form 8606 — 401(k)

A 401(k) direct rollover to a traditional IRA does not itself require Form 8606. However, it increases the year-end IRA value used in the pro-rata denominator (Form 8606 Part II Line 6). A participant who has existing non-deductible IRA contributions and then rolls a large 401(k) into the same IRA will find that the taxable percentage of future Roth conversions increases — because the denominator grew while the basis numerator stayed the same.

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Cumulative Basis Carryforward — File Every Year Without ExceptionForm 8606 Line 14 carries the remaining IRA basis forward to the next year. This number must be maintained continuously — a gap of even one year creates undocumented basis and the risk of double taxation on future distributions. Retain all Form 8606s indefinitely.

7Expert Analysis

Form 8606 is arguably the most financially consequential tax form in the retirement planning system — and the one most frequently neglected. The IRA basis tracked on Form 8606 is the only mechanism that prevents double taxation of non-deductible IRA contributions. Without it, the IRS taxes 100% of every traditional IRA distribution as ordinary income — including amounts that were contributed on an after-tax basis. Millions of IRA holders who made non-deductible contributions in earlier years have never filed a Form 8606, effectively gifting the IRS additional tax revenue that is not legally owed.

For retirees in the 60–75 age range who made non-deductible IRA contributions in the 1990s and early 2000s (before Roth IRAs became widely available and before income limits made Roth contributions unavailable to high earners), Form 8606 documentation is critically important. Many of these individuals have never filed a Form 8606 despite having contributed thousands of dollars in non-deductible basis. Reconstructing this history before beginning Roth conversion withdrawals can save tens of thousands of dollars in avoided double taxation.

📋 Compliance Note

🔍 Retention Strategy

Retain Form 8606 from every year it was filed — indefinitely for Roth IRA accounts. The cumulative basis tracked across years of Form 8606 is the documentation that prevents double taxation on future IRA distributions. Loss of Form 8606 history means the IRS will tax 100% of all IRA distributions as ordinary income.

✅ Account Authority

Governed under IRC Section 401(k) and IRS Publication 575. The IRS requires plan administrators to provide a written Rollover Notice (IRC Section 402(f)) at least 30 days before any eligible rollover distribution.

8Common Mistakes to Avoid

Never filing Form 8606 after making non-deductible IRA contributions

Every year a non-deductible IRA contribution is made, Form 8606 Part I must be filed. Skipping this creates an undocumented basis — and when distributions are eventually taken, the IRS will tax 100% of them as ordinary income without the basis documentation to prove otherwise. The fix for prior years is to file late Form 8606s, but reconstructing the history of contributions requires original bank statements and contribution records that become harder to locate with each passing year.

Using the prior year's IRA balance instead of the December 31 year-end value on Form 8606 Line 6

Form 8606 Part II Line 6 requires the year-end fair market value of all traditional IRAs — as of December 31 of the conversion year. Using a mid-year balance or the prior year's balance produces an incorrect pro-rata fraction. The correct value comes from the December 31 account statement or from Form 5498 Box 5 (which arrives in May — after the filing deadline). Use the year-end account statement, not the Form 5498, for timely filing.

Executing a large 401(k) rollover to a traditional IRA in the same year as a planned Roth conversion without modeling the pro-rata impact

Rolling a $400,000 401(k) into a traditional IRA in October and then converting $50,000 to a Roth IRA in December of the same year creates a pro-rata calculation using the year-end balance that includes the rollover. The $400,000 rollover dramatically increases the denominator, reducing the non-taxable percentage of the conversion. If the goal was to convert primarily non-deductible basis, this sequencing produces a much higher taxable amount than expected. Coordinate the rollover and conversion timing carefully — or use a reverse rollover strategy to remove the pre-tax balance from the IRA pool before converting.

9Frequently Asked Questions

Do I need to file Form 8606 for a direct 401(k) rollover to a traditional IRA?

Not for the rollover itself — a direct rollover between pre-tax accounts does not require Form 8606. However, if you have existing non-deductible IRA contributions, the rollover increases your IRA balance and affects the pro-rata denominator for any future Roth conversions. Form 8606 will be required in future years when you convert or take distributions from the IRA.

What is the pro-rata rule and how does it affect my Roth conversion?

The pro-rata rule prevents you from selectively converting only your after-tax IRA basis to a Roth IRA tax-free. Instead, every conversion is treated as a proportional mix of pre-tax and after-tax amounts, based on the ratio of your total IRA basis to your total IRA balance across all traditional, SEP, and SIMPLE IRAs. If your basis is 10% of your total IRA value, then 10% of any conversion is non-taxable — regardless of which IRA you convert from.

What happens if I never filed Form 8606 for my non-deductible IRA contributions?

You can file late Form 8606 forms to establish your basis — the IRS allows this with a $50 penalty per late filing. Without this documentation, the IRS will treat 100% of your IRA distributions as taxable ordinary income, even the amounts you already paid tax on when you contributed. Reconstructing your contribution history from bank records and prior tax returns is the starting point. Filing late is almost always financially worthwhile.

Do I need Form 8606 for a 401(k) rollover?

What is the filing deadline for Form 8606?

Form 8606 is due: April 15 (October 15 with extension). Failure to file when required carries a $50 penalty per occurrence — but the more costly consequence is the IRS treating 100% of future IRA distributions as taxable for lack of basis documentation.. Form 8606 is filed with Form 1040 by April 15 (or October 15 with extension). There is also a standalone filing option: if Form 8606 is required but Form 1040 is not (rare edge case), it can be filed separately with a $50 penalty for failure to file.

10IRS References & Regulatory Authority

Primary Publication

IRS Publication 590-A (Contributions to IRAs) — Form 8606, Part I instructions

Secondary Publication

IRS Publication 590-B (Distributions from IRAs) — Form 8606, Parts II and III instructions

IRC Sections

IRC Section 408(d)(2) (pro-rata rule for IRA distributions); IRC Section 408A(d)(2) (Roth IRA ordering rules)

401(k) — Distribution Form