Form 8606 and Why IRA Basis Goes Missing
Money that went into a traditional IRA without a deduction has already been taxed. When it comes out again, that portion should not be taxed a second time. The only thing standing between you and that outcome is a form — and because it is filed in years when nothing appears to be happening, it is the one people skip.
- What creates basis:: Contributions to a traditional IRA that you did not deduct, whether by choice or because income ruled the deduction out.
- Filed in quiet years:: The form is due for the year of the contribution, even though no money came out and no tax is owed.
- Pro rata on the way out:: Basis is returned proportionally across all traditional, SEP and SIMPLE IRAs, never from one account alone.
- No record, no relief:: Undocumented basis is treated as taxable when distributed, which is the same money taxed twice.
Where the AI summary above gets this wrong
"Keep your contribution records and you can prove your IRA basis when you withdraw."
That's surface-true. Here's what it misses:
- The form is the record, not your statements — Brokerage statements show contributions but not whether you deducted them, which is the fact that matters. The deduction decision lives on the tax return, and Form 8606 is where the cumulative basis is carried from year to year. Without it, there is nothing that establishes the number.
- Basis is pooled, not per account — People open a separate IRA for non-deductible contributions expecting to withdraw from it cleanly. It does not work: every traditional, SEP and SIMPLE IRA you own is treated as one account for this purpose, so basis comes out proportionally across the lot.
- The gap is usually years old before anyone notices — The form goes unfiled in a year with no distribution and no tax due, so nothing flags it. It surfaces a decade later at the first conversion or withdrawal, when reconstructing which years had non-deductible contributions means finding old returns nobody kept.
01 What creates basis, and when to file
A traditional IRA contribution is deductible, partly deductible, or not deductible at all, depending on income and whether you or a spouse is covered by a workplace plan. The portion you cannot deduct is after-tax money, and it becomes basis.
Form 8606 is filed for the year of that contribution, whether or not you owe anything, and whether or not you took a distribution. It carries a running total forward. The commonest failure is not disagreement with the rule but omission: nothing happened that year, so the form was not attached.
It is also the form behind every backdoor Roth. That manoeuvre is a non-deductible contribution followed by a conversion, and if the 8606 is missing, what should have been a nearly tax-free conversion is reported as fully taxable.
Source: About Form 8606
02 The pro rata rule
When money leaves a traditional IRA, the tax-free share is the proportion that basis bears to the total value of all your traditional, SEP and SIMPLE IRAs combined, measured at year end.
So basis of $48,000 against $400,000 of total IRA value makes 12% of any distribution tax-free, regardless of which account it came out of. Segregating after-tax money into its own IRA achieves nothing — the aggregation is a rule about the taxpayer.
Employer plans are not part of the pool. That is the lever people use: rolling a pre-tax IRA into a current employer's 401(k) shrinks the denominator and raises the tax-free proportion of everything that follows. The rollover direction matters more here than anywhere else.
Shows: how the pro rata rule splits a conversion or withdrawal between the tax-free return of basis and the taxable remainder, using the combined value of every traditional, SEP and SIMPLE IRA you hold. Ignores: employer plan balances, which are not aggregated, state tax, and the year-end valuation timing the actual calculation uses.
Source: Publication 590-B
03 Repairing a missing record
If the form was never filed, the basis is not lost as a matter of law — it is undocumented. The remedy is to establish it, which means reconstructing which years had non-deductible contributions and filing the missing forms.
Old tax returns are the primary evidence, since they show whether the deduction was taken. Form 5498 from the custodian shows the contribution itself. Where returns are gone, transcripts from the IRS cover recent years, and older years may have to be reconstructed from whatever contemporaneous records exist.
Doing this before the first distribution is far easier than afterwards. The natural moment is at retirement, alongside the wider withdrawal planning, and it should happen before any conversion is made rather than in the spring after one.
Source: Publication 590-A
This is the most boring thing that costs people real money. I have sat with households trying to reconstruct fifteen years of contribution history from bank statements, because a form was skipped in years when nothing seemed to be happening. If you have ever made a non-deductible IRA contribution, find out whether the 8606 was filed — before you convert anything. The repair is straightforward while the records exist and close to impossible once they do not.
FAQ
Do I need to file Form 8606 if I did not withdraw anything?
Yes, if you made a non-deductible contribution to a traditional IRA that year. The form records the basis for later, and skipping it in quiet years is how basis goes missing.
Can I withdraw only my after-tax IRA money?
No. The pro rata rule treats all your traditional, SEP and SIMPLE IRAs as one pool, so every distribution comes out part basis and part taxable in the same proportion.
What if I never filed Form 8606 for past years?
File the missing forms to establish the basis, using old returns and Form 5498 records as evidence. Doing it before your first distribution or conversion is much simpler than doing it after.
Sources
Regulator references
- About Form 8606 · Internal Revenue Service · 2026What the form reports and when it must be filed.Last verified: 2026-09-07
- Publication 590-A · Internal Revenue Service · 2026Non-deductible contributions and how basis is created.Last verified: 2026-09-07
- Publication 590-B · Internal Revenue Service · 2026The pro rata rule that determines how much of a distribution is taxable.Last verified: 2026-09-07
Calculator unit tests · the assertions this page's worked example is checked against, and their last result
Changelog
- 2026-09-07 — initial publish (new format)
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Jordan Reeves
Founder of Talk Through Wealth. A software engineer for over a decade before turning to retirement planning, Jordan built the projection engine after watching family members get fragmented, country-by-country advice that never reconciled. He writes about retirement the way the engine computes it: month-by-month, lifetime-long, and skeptical of any rule of thumb that hasn't been run through the math.