what is form 8606 
internal revenue service irs form 8606 nondeductible iras is used by filers who make nondeductible contributions to an individual retirement account ira a separate form should be filed for each tax year that nondeductible contributions are made normally contributions to an ira are deductible from ordinary income in some circumstances however people who participate in an employer retirement plan and whose households exceed a threshold of modified adjusted gross income magi might not be able to make these deductible contributions though they can still contribute to an ira 1who can file an 8606 participants should file form 8606 in conjunction with the standard income tax forms 1040 or 1040nr for individual filers any taxpayer with a cost basis above zero for ira assets a combination of post and pre tax contributions or deductible and nondeductible contributions should use form 8606 to prorate the taxable vs nontaxable distribution amounts if the taxpayer does not file irs form 8606 in a distribution year income taxes and possibly penalties may be due what would ordinarily be tax free money is now taxable re characterizing an irayounger investors should consider re characterizing traditional and simplified employee pension sep ira assets as roth assets assets that are so re characterized are immediately taxable as ordinary income money placed into a traditional or sep ira has usually never been taxed 2 when money comes out of a traditional or sep ira it becomes taxable already taxed money is not taxed when it comes out of the account not having to pay taxes on future distributions may outweigh the immediate tax bill caused by the re characterization investors should speak with a tax professional before attempting a re characterization form 8606 is also required whenever a taxpayer either converts a traditional or sep ira to a roth ira or receives an ira distribution that is attributable to previous nondeductible contributions 3