Does Form 8606 Really Apply to 401(k) Accounts? – Avoid This Mistake + FAQs

No, Form 8606 generally does not apply to 401(k) accounts.

IRS Form 8606 is used to track after-tax money in IRAs (Individual Retirement Accounts), not employer-sponsored 401(k) plans. If you contribute to a 401(k) – whether pre-tax, Roth, or after-tax – you do not file Form 8606 for those contributions or distributions.

The 401(k) plan administrator and your employer handle the necessary tax reporting (for example, through your W-2 for contributions and Form 1099-R for distributions).

That said, there is an important caveat. Form 8606 can come into play indirectly if you move money from a 401(k) to an IRA. For instance, suppose your 401(k) contains after-tax contributions and you roll it over into a Traditional IRA when leaving your job.

In the year of the rollover, you still do not file Form 8606. But later on, when you take distributions from that IRA or convert it to a Roth IRA, Form 8606 will be used to report the after-tax portion (basis) so you aren’t taxed on it again.

For a 401(k) alone, Form 8606 is not required, but if 401(k) funds end up in an IRA, you may need Form 8606 in the future.

What Is IRS Form 8606 (and Why It Matters)?

IRS Form 8606, Nondeductible IRAs, is a specialized tax form used to report after-tax amounts in IRAs.

In simple terms, it tracks your “basis” in retirement accounts. Basis means money you’ve already paid tax on – such as nondeductible contributions to a Traditional IRA or after-tax funds rolled into an IRA. Form 8606 ensures that this after-tax money isn’t taxed a second time when you withdraw it.

When do you need to file Form 8606? The IRS requires Form 8606 for any year you do certain IRA-related activities, including:

• Making nondeductible contributions to a Traditional IRA. For example, if you put $6,500 into a Traditional IRA and choose not to deduct it on your tax return (often because your income is too high to deduct), you must file Form 8606 to report that contribution. This establishes your basis in the IRA.
• Converting a Traditional IRA to a Roth IRA. When you do a Roth conversion (moving funds from a pre-tax IRA to a Roth IRA), Form 8606 reports how much of the conversion is taxable. If you have after-tax dollars in the IRA, those won’t be taxed again during the conversion – and Form 8606 does the math.
• Taking distributions from an IRA that has after-tax money. If you withdraw from a Traditional IRA where you have basis, or you take out money from a Roth IRA (which is funded by after-tax contributions) – Form 8606 helps determine how much of the withdrawal is tax-free.

Form 8606 is the IRS’s mechanism to prevent double taxation on after-tax IRA funds. It’s crucial for taxpayers who mix pre-tax and post-tax dollars in their IRAs.

However, Form 8606 is not used for employer plans like 401(k)s or 403(b)s directly, because those plans have their own reporting rules.

Important: Failing to file Form 8606 when required can lead to a $50 IRS penalty (and a $100 penalty for overstating your basis). More critically, if you forget to file it, you risk paying tax twice on the same dollars.

For example, if you made after-tax IRA contributions years ago but never documented them on 8606, the IRS may treat the entire IRA withdrawal as taxable since there’s no record of your basis.

Keeping accurate Form 8606 records protects you from this outcome. (We’ll discuss a real Tax Court case later that highlights this risk and how the courts view missing 8606 forms.)

Inside Your 401(k): Pre-Tax, Roth, and After-Tax Contributions

To understand why Form 8606 doesn’t directly apply to 401(k)s, we need to look at how 401(k) contributions work. A 401(k) plan can actually hold three types of contributions:

1. Traditional (Pre-Tax) 401(k) Contributions: These are the most common. Money comes out of your paycheck before taxes and goes into the 401(k). This lowers your current taxable income. Later, when you take distributions in retirement, those pre-tax contributions (and their earnings) are fully taxable as ordinary income. No Form 8606 is involved, because the IRS doesn’t need a special form – all the money was pre-tax and will be taxed on withdrawal.
2. Roth 401(k) Contributions: These are made after-tax, meaning they do not reduce your current income – you pay taxes on that salary, then contribute it to the plan’s Roth side. The big benefit is that qualified withdrawals from a Roth 401(k) in retirement are tax-free (both contributions and earnings, similar to a Roth IRA). Again, no Form 8606 is used, because Roth 401(k) contributions are tracked by the plan, and qualified distributions are handled under plan rules and reported to you via Form 1099-R when you withdraw.
3. After-Tax (Non-Roth) 401(k) Contributions: Some 401(k) plans allow a third category: after-tax contributions that are not Roth. These are additional contributions you can make beyond the normal 401(k) limits for pre-tax/Roth deferrals. Like Roth contributions, they are made with after-tax dollars (so they don’t reduce your current taxable income). However, unlike Roth, the earnings on these after-tax contributions will be taxable when withdrawn if they remain in the 401(k). These contributions essentially create a basis within your 401(k), which the plan will track.

It’s this third category – after-tax 401(k) contributions – that often causes confusion about Form 8606. Why? Because they sound similar to nondeductible IRA contributions (both are after-tax money going into a retirement account).

The key difference is location: one is inside a 401(k) plan, the other in an IRA. The IRS requires Form 8606 for after-tax money in an IRA, but for after-tax money inside a 401(k), the plan itself keeps track. You do not file a Form 8606 for after-tax 401(k) contributions.

Let’s clarify with a quick example: Say you contribute an extra $5,000 of after-tax money to your 401(k) plan this year (on top of your regular pre-tax or Roth contributions).

That $5,000 is included in your taxable wages on your W-2 (because it’s after-tax), so you’ve paid tax on it already. Your 401(k) plan records that $5,000 as your plan basis.

When you eventually withdraw from the 401(k), the plan will designate $5,000 of the distribution as already-taxed, so you won’t pay tax on that portion again. The reporting of this will happen on Form 1099-R issued by the plan at distribution time, which splits your distribution into taxable and non-taxable amounts.

At no point in this process do you need to file Form 8606, since the tracking was done within the 401(k) and reported via the 1099-R.

Contribution Limits and the Mega Backdoor Roth

Why would someone make after-tax (non-Roth) contributions to a 401(k) in the first place?

The main reason is the contribution limits. In 2025, the standard elective deferral limit (the amount you can put into a 401(k) as pre-tax or Roth) is in the low $20,000s (it adjusts annually for inflation; for example, it was $22,500 in 2023 for those under 50).

However, the total annual contribution limit to a 401(k) plan – including employer match, employer profit-sharing, and after-tax contributions – is much higher (over $60,000; e.g. $66,000 in 2023, or even more if you’re 50+ and have catch-up contributions). If your employer’s plan allows it, you could contribute after-tax dollars beyond your $22,500 limit, up to that total plan limit.

This is often used in a strategy called the “Mega Backdoor Roth”. Essentially, you put extra after-tax money into your 401(k), then convert it to Roth. Some plans let you do an in-plan Roth conversion of after-tax funds (moving them from the after-tax subaccount into the Roth 401(k) portion) periodically.

Other times, people do an in-service withdrawal of the after-tax funds and roll them into a Roth IRA. Either way, the result is those after-tax contributions get to grow tax-free as Roth money thereafter. It’s a powerful move for high savers.

And importantly, none of these steps require Form 8606 as long as the money stays within the 401(k) or goes directly to a Roth IRA. (The conversion of after-tax 401(k) funds to Roth is reported via 1099-R and on your 1040 tax return, but it’s not an IRA conversion, so Form 8606 isn’t used to report it.)

Quick recap: A 401(k) plan tracks after-tax contributions internally. The IRS doesn’t ask you to file a form for it annually like it does with an IRA. Only when you interact with an IRA (via rollovers or conversions) does Form 8606 potentially enter the picture.

Federal Tax Rules: After-Tax 401(k) Money and Form 8606

Under federal tax law, 401(k)s and IRAs are governed by different sections of the tax code, and thus have different reporting requirements. Here’s how the rules play out:

• 401(k) Plans (Qualified Plans): By law, these plans must report any distributions to you and the IRS on Form 1099-R. If you have after-tax contributions in the plan, the 1099-R will show a portion of the distribution as non-taxable (the part that represents a return of your after-tax contributions). The plan is responsible for keeping track of how much after-tax money you have in your account. The IRS does not require you to file a separate form each year to document after-tax contributions to a 401(k).
• IRAs: Traditional IRAs rely on you, the taxpayer, to track any after-tax contributions. The IRS doesn’t get a report of your Traditional IRA contributions unless you claim a deduction (which shows up on your Form 1040) or you file Form 8606 for nondeductible contributions. So the IRS created Form 8606 to have an official record. When you eventually take money out of the IRA, you refer back to the cumulative Forms 8606 to figure out how much of your IRA balance is basis (already taxed) versus earnings or pre-tax contributions (taxable).

Bridging the two: The connection between a 401(k) and Form 8606 arises when funds move from one to the other. Thanks to IRS rules, you can roll over your 401(k) assets when you leave an employer (or sometimes even while still working, via in-service rollovers). If you have after-tax funds in your 401(k), you have a couple of options:

1. Roll after-tax 401(k) contributions into a Traditional IRA. The after-tax amount will enter the IRA as basis. You are not required to file Form 8606 for the rollover itself (the IRS knows from the 1099-R that it’s a nontaxable rollover). However, you must keep track of that basis going forward. The first time you take a distribution from that IRA (or convert some of it to Roth), you will file Form 8606 to report your total IRA basis (including the portion that came from the 401(k)). Essentially, the 8606 filing is deferred until there’s a taxable event involving that IRA.
2. Roll after-tax 401(k) contributions directly into a Roth IRA. This is allowed by a special rule (IRS Notice 2014-54) which lets you split a rollover: send the pre-tax portion of your 401(k) to a Traditional IRA (so it’s tax-free at rollover) and send the after-tax portion to a Roth IRA (also tax-free at rollover for the principal amount). In this case, you’ve effectively converted your after-tax 401(k) money into a Roth IRA in one step. No Form 8606 is needed for this rollover because it’s not coming from a Traditional IRA – it’s a 401(k) to Roth IRA rollover. You will just report the direct Roth rollover on your tax return (the 1099-R will show that the taxable amount is zero or only the earnings portion, if any, was taxable). You’ve avoided ever having that basis reside in a Traditional IRA, so Form 8606 never enters the picture.

These rollover rules were clarified by the IRS to make it easier to handle after-tax money. Prior to 2014, some people worried that if they rolled a 401(k) with mixed pre- and post-tax money into an IRA and Roth, it might be treated less favorably.

But IRS Notice 2014-54 explicitly allows allocation of after-tax amounts to a Roth destination. This means savvy taxpayers can avoid entangling after-tax 401(k) funds with a Traditional IRA at all, thereby sidestepping Form 8606 issues.

Important: If you do roll after-tax 401(k) money into a Traditional IRA (rather than to Roth), be aware of the pro-rata rule that will apply to any subsequent conversions or distributions. The IRA will now contain a mix of after-tax and maybe pre-tax dollars (if you also rolled over the pre-tax portion or had other IRAs).

When you convert or withdraw, you can’t just pull out only the after-tax part – the tax law will consider a proportional share of pre-tax and post-tax funds in any distribution. Form 8606 will calculate that proportion for you.

For example, if half your IRA money is after-tax basis, any distribution will be half tax-free and half taxable (simplifying a bit). This is why many prefer the direct-to-Roth rollover for after-tax 401(k) funds: it converts 100% of those funds to Roth at once with no tax due on the principal, avoiding the ongoing pro-rata calculations.

The table below summarizes some common scenarios and whether Form 8606 is required:

As you can see, Form 8606 is tightly linked to IRAs, and not used for 401(k) transactions, except indirectly after a rollover. Always remember: if the money is in a qualified employer plan, the plan’s reporting covers it; if the money is in an IRA and has after-tax components, your Form 8606 reporting covers it.

State Tax Nuances: How States Treat After-Tax Contributions

Federal rules are just one side of the coin. State tax laws can add another layer of complexity to after-tax contributions and distributions.

While Form 8606 is a federal form (there is no state-equivalent Form 8606), you should be aware of your state’s treatment of retirement contributions because it can affect how you calculate taxable income on your state return.

Here are a couple of noteworthy examples:

• New Jersey: New Jersey has unique tax rules for retirement accounts. It does not allow a state tax deduction for Traditional IRA contributions or for certain employer plan contributions like 403(b)s, even if those contributions were tax-deferred at the federal level.

• (New Jersey does, however, follow federal treatment for 401(k) salary deferrals – those are excluded from NJ taxable income up front.) What this means is if you contributed to a Traditional IRA and deducted it on your federal return, New Jersey made you add that deduction back – effectively treating it as an after-tax contribution for NJ purposes.

• Conversely, when you take distributions in retirement, New Jersey won’t tax you again on the portion of the withdrawal that represents contributions that were already taxed by NJ. Taxpayers must calculate the taxable portion of IRA or pension withdrawals using a “withdrawal exclusion ratio” for New Jersey: essentially the state’s version of tracking basis (done on worksheets in the NJ tax booklet).

• While you don’t file a separate NJ form akin to 8606, you do need good records of contributions that were taxed by NJ.

• Key point: If you have after-tax contributions in a 401(k) or IRA, make sure to adjust for them on your state tax return if your state taxed those contributions originally. New Jersey, for example, would allow you to exclude the after-tax 401(k) contributions from taxable income when you withdraw, so you’re not double-taxed at the state level.

• Pennsylvania: Pennsylvania generally has a more generous stance on retirement income. PA does not allow deductions for Traditional IRA contributions (similar to NJ, they’re after-tax for PA), but importantly, Pennsylvania often exempts retirement distributions from taxation if you are above a certain age (59½) or meet certain conditions (having terminated employment after a certain age, etc.).

• In practice, many retirees in PA pay no state income tax on their 401(k) or IRA withdrawals. For someone with after-tax contributions, PA’s rules mean you likely already paid PA tax on those contributions (since you got no deduction), and PA then might not tax your withdrawal at all if it’s a “qualified” distribution.

• The nuance here is that PA taxpayers should still track their contributions to ensure any non-exempt distributions (say, early withdrawals that don’t meet the exemption) don’t get taxed on the already-taxed portion. Again, no separate state form is filed, but your federal Form 8606 and plan records can help you determine the right state taxable amount.

• States with No Income Tax: If you live in a state with no income tax (like Florida, Texas, etc.), state treatment is a non-issue for your contributions and distributions. There’s no state tax to worry about.

• However, if you move from a no-tax state to a taxing state (or vice versa) over your lifetime, be mindful that the new state might look at your past contributions differently. Generally, states follow one of the approaches above (tax it now, or tax it later, or not at all in some cases).

The main takeaway for state nuances is that your state’s tax rules may treat the timing of taxation on retirement contributions differently from the federal rules. This doesn’t change whether you file Form 8606 (you still file it based on federal requirements), but it does mean you should retain your Form 8606 and 1099-R information for state tax calculations.

For example, if you retire to New Jersey with a hefty IRA that includes nondeductible contributions, you’ll rely on your federal basis records (Forms 8606) to compute how much of each IRA distribution is taxable on your NJ return. States like NJ essentially use the concept of basis too, even if they don’t have an official “Form 8606-NJ.”

Finally, be aware that some states might have their own quirky rules or worksheets for pension and IRA income. Always consult your state’s tax instructions or a tax professional to understand local nuances.

Good recordkeeping of after-tax contributions is universally beneficial – it ensures you never pay any government (federal or state) tax twice on the same dollar.

Legal Risks of Getting It Wrong (and a Look at Court Rulings)

The rules around after-tax contributions and Form 8606 might seem complicated, but the real trouble comes if you don’t follow them properly. There are a few legal and financial risks to highlight:

1. Double Taxation: This is the biggest risk. If you fail to document your after-tax contributions, you might end up paying tax on that money again when you withdraw it. For example, imagine over the years you put $30,000 of nondeductible contributions into a Traditional IRA but never filed Form 8606.

Decades later, your IRA has grown and you start taking distributions. The IRS – lacking any record that you have $30,000 of basis – will treat the distributions as fully taxable.

You’d be taxed on that $30,000 twice (once when you earned it and contributed it, and again when you withdraw). That’s an expensive mistake!

The onus is on the taxpayer to keep proof of after-tax amounts (hence the importance of Form 8606). The IRS can’t tax you on money that was already taxed, but without documentation, you could lose the argument.

2. IRS Penalties: As mentioned, not filing Form 8606 when required can trigger a $50 penalty for each failure. Similarly, if you deliberately (or accidentally) overstate your basis (claiming more after-tax basis than you actually have), the IRS can impose a $100 penalty.

While these dollar amounts aren’t huge, they can add up over multiple years. Moreover, if the IRS believes you willfully didn’t report things correctly, accuracy-related penalties or even fraud penalties could enter the picture.

Generally, if you realize you missed filing an 8606 in past years, it’s wise to file it retroactively (you can send the form by itself, even if the tax return for that year is long past – the IRS will process stand-alone 8606 forms to update their records).

3. Complexity for Heirs: Failing to handle after-tax amounts properly can create a headache for your beneficiaries. If your heirs inherit an IRA that has an undocumented after-tax portion, they might end up overpaying tax because they had no idea some of it was already taxed.

Imagine inheriting an IRA and not knowing that, say, 20% of it was funded with nondeductible contributions. If the original owner didn’t leave behind Form 8606 records, the beneficiary might assume it’s all taxable and pay more tax than necessary on distributions.

Estate and legacy planning should include making sure your heirs know about any basis in your retirement accounts (and where to find your Form 8606 records).

4. Losing IRS Disputes (or Needing to Go to Court): The IRS’s default stance is that if there’s no Form 8606 on file, they presume $0 basis in the IRA.

There was a noteworthy Tax Court case, Shank v. Commissioner (T.C. Memo 2018-33), that illustrated how this can play out. In that case, a taxpayer had made nondeductible contributions to an IRA but never filed Form 8606. Years later, he took a full distribution and claimed it was all basis (thus not taxable).

The IRS, seeing no 8606 forms, said “no basis – the whole distribution is taxable.” The case went to court. In court, the taxpayer had to reconstruct evidence: old payroll stubs, testimony that his income was too high to deduct contributions, account statements, etc., to prove he indeed had made after-tax contributions.

The Tax Court actually sided with him in part – they allowed some basis ($4,760 worth) based on the evidence, reducing his taxable amount. But he still got stuck paying tax (and penalties) on the rest of the distribution because he didn’t have records for all of it.

The Shank case serves as a cautionary tale: courts may allow reconstruction of basis if you have credible evidence, but it’s far from guaranteed and it’s certainly a painful process compared to simply filing Form 8606 each year.

5. Plan Mistakes: One risk on the 401(k) side is relying entirely on the plan and then the plan makes an error or you lose track when rolling funds over.

While it’s not your job to file 8606 for a 401(k), it is your responsibility to ensure any rollover is done correctly. If the plan reports something incorrectly on a 1099-R (like mis-categorizing a distribution’s taxable amount), you’ll want to catch that. Always review your 1099-R forms against your own records.

For instance, if you know you had $50,000 of after-tax contributions in your 401(k) and you roll the whole account to an IRA, check that the 1099-R shows $50,000 as the basis (Box 5 of the 1099-R typically shows employee contributions). If it doesn’t, get it corrected. Errors in reporting can lead to tax trouble if not fixed.

The legal risks boil down to poor documentation and compliance. The good news is the solutions are straightforward: file Form 8606 when you’re supposed to, keep copies of everything (Forms 8606, 5498 forms from IRA custodians, W-2s showing contributions, etc.), and communicate with plan administrators during rollovers to keep after-tax money clearly identified.

Financial Planning Perspectives: Making the Most of After-Tax Contributions

Understanding the tax rules is not just about avoiding penalties – it’s also about making savvy financial planning decisions. Here are some planning insights regarding after-tax contributions and Form 8606:

Maximize Roth Opportunities: If you’re a high earner who can’t contribute directly to a Roth IRA due to income limits, you might be familiar with the Backdoor Roth IRA strategy.

That involves contributing after-tax to a Traditional IRA and then converting it to Roth (filing Form 8606 to show the contribution and then the conversion). However, if you have a 401(k) plan that allows after-tax contributions and in-service rollovers or conversions, you might be able to do a Mega Backdoor Roth, which has much higher limits. From a planning perspective, the Mega Backdoor Roth can supercharge your Roth savings.

Just remember to coordinate your strategies: for example, if you attempt a backdoor Roth IRA but also have large pre-tax IRA balances, you could face unwanted taxes due to the pro-rata rule.

One solution is to do a reverse rollover: move your pre-tax IRA money into your 401(k) (most 401(k) plans will accept incoming rollovers of pre-tax IRA funds). This cleans the slate so that any remaining IRA balance is just after-tax basis, which you can then convert to Roth with minimal tax.

By doing so, you essentially use your 401(k) to shelter the pre-tax dollars and use Form 8606 to manage the after-tax dollars conversion. This is an example of how 401(k)s and IRAs can work together to optimize outcomes.

Compare After-Tax 401(k) vs. Nondeductible IRA: If your goal is to put aside more after-tax money for retirement and eventually get it into a Roth, consider the pros and cons of using your 401(k) plan versus an IRA:

• Pros of after-tax 401(k) contributions: Much higher contribution limits than an IRA; funds can potentially be converted to Roth in larger chunks; under ERISA, 401(k) assets have strong creditor protection; and no income restrictions on who can contribute (everyone eligible for the plan can use after-tax if plan allows).
• Cons of after-tax 401(k) contributions: Not all plans permit them; those that do might have limits on frequency of conversions or withdrawals; if left in the plan, after-tax contributions’ earnings are taxable upon distribution; and you can’t use that money until a distributable event occurs (leaving job or reaching age for in-service withdrawal). Also, 401(k) plans have required minimum distributions at age 73 (starting age as of current law) for Roth 401(k) assets too (though you can roll Roth 401(k) money to a Roth IRA to avoid RMDs).
• Pros of nondeductible Traditional IRA contributions: Available to anyone with earned income (no plan needed); flexible use (you can convert to Roth on your own timeline, even immediately for a backdoor Roth); you control the investments and custodian.
• Cons of nondeductible IRA contributions: Low contribution limit ($6,500 – $7,500 per year range), which is tiny compared to what a 401(k) can allow; requires meticulous annual Form 8606 filing; and if you have any other pre-tax IRA money, every Roth conversion or distribution will be part-taxable due to the pro-rata rule, unless you take extra steps to isolate the basis.

It might help to see a side-by-side pros and cons comparison in a table:

In practice, many people use both strategies in different phases of life. For example, you might max out your 401(k) (including after-tax contributions for a Mega Roth rollover) for as long as you’re employed with a good plan, and also use a nondeductible IRA (backdoor Roth) if you don’t have access to after-tax 401(k) options or after you leave your job.

Keep Good Records and Plan Ahead: A bit of proactive planning can prevent headaches. If you make nondeductible IRA contributions, set a reminder to always include Form 8606 on your tax return (tax software often does this if you input the contribution correctly, but double-check).

Maintain a file with all your past Forms 8606. Likewise, keep your 401(k) statements that show after-tax contributions. When you eventually roll funds over, communicate with the financial institutions: let the 401(k) administrator know if you intend to split the rollover into Traditional and Roth destinations, and inform the IRA or Roth custodian that the incoming rollover has after-tax funds.

Usually the paperwork has boxes to check for this, but it’s good to be explicit. After the rollover, verify the 1099-R and the IRA provider’s Form 5498 (which shows rollover contributions received) to ensure everything was coded correctly.

Consider Converting After-Tax Amounts Sooner Rather Than Later: If you leave after-tax dollars in a Traditional IRA or in a 401(k) without converting them, the growth on those dollars will be taxable eventually.

Many financial advisors suggest converting after-tax amounts to Roth as soon as feasible. For instance, if your 401(k) allows quarterly rollovers of after-tax contributions to Roth IRA, taking advantage of that means the after-tax contributions have very little time to generate taxable earnings (so almost the whole amount goes into Roth tax-free).

This stops the “tax clock” on future earnings. Similarly, if you rolled after-tax money to a Traditional IRA, you might convert it to Roth IRA soon after (possibly paying tax only on a small bit of earnings accumulated).

Once in the Roth IRA, all future earnings are tax-free. From a long-term planning perspective, this maximizes tax-free growth and simplifies future tax reporting (no need for 8606 once the basis is fully moved into Roth).

Heed Required Minimum Distributions (RMDs): One often overlooked aspect: Traditional IRAs (and 401(k)s) eventually force you to take RMDs. If you have a large basis in an IRA because of after-tax contributions, those RMDs will proportionally be tax-free, which is fine, but it also means you’ll be pulling money out on a schedule.

If you don’t need that money, it might be better to convert to Roth earlier and avoid RMDs altogether (Roth IRAs have no lifetime RMDs). Roth 401(k)s now (from 2024 onward) won’t have RMDs either due to recent law changes, but in the past one would roll Roth 401(k) to Roth IRA to avoid RMDs.

The landscape keeps evolving, so keep an eye on law changes that affect these accounts.

Final thought: Whether or not Form 8606 applies to your situation, the ultimate goal is to minimize taxes and maximize after-tax wealth from your retirement accounts.

Using the rules to your advantage – and following the reporting requirements – will help you get the most out of your 401(k) and IRA savings. If you’re ever unsure, consult a tax advisor, because mistakes with retirement accounts can often be corrected, but it’s best to do them right the first time.

FAQs on Form 8606 and 401(k) Accounts

Q: Do after-tax 401(k) contributions require filing Form 8606?
A: No. Form 8606 is not required for after-tax contributions made inside a 401(k) plan. The 401(k) plan administrator tracks those contributions, and no separate IRS form is filed by the participant.

Q: Is Form 8606 used for Roth 401(k) contributions or withdrawals?
A: No. Roth 401(k) contributions are after-tax but are handled entirely within the plan. You don’t file Form 8606 for Roth 401(k) contributions or distributions; tax reporting is done through plan statements and Form 1099-R.

Q: If I roll my 401(k) to an IRA, do I file Form 8606 in that year?
A: No. You do not file Form 8606 for the rollover year. If you rollover after-tax 401(k) funds into a Traditional IRA, you’ll file Form 8606 later when you take distributions from that IRA to claim the after-tax amount.

Q: What if I convert my after-tax 401(k) money directly to a Roth IRA?
A: No Form 8606 is needed. A direct rollover from a 401(k) to a Roth IRA (often done with after-tax contributions) is reported on your tax return via the 1099-R, but it doesn’t involve Form 8606.

Q: Are there penalties for forgetting to file Form 8606 for an IRA?
A: Yes. The IRS can impose a $50 penalty for not filing Form 8606 when required. However, this is often waived if you show reasonable cause. The bigger issue is potential double taxation if you don’t document your after-tax contributions.

Q: Do I need to track after-tax contributions for state taxes separately?
A: Yes. You should track them. While states don’t have their own Form 8606, some states tax retirement contributions differently. Keeping good records ensures you don’t pay state tax twice on the same contribution.

Q: Can I file Form 8606 retroactively if I missed it in prior years?
A: Yes. You can and should file a Form 8606 for past years if you forgot. The IRS allows stand-alone Form 8606 filings to update your IRA basis, helping you avoid future double taxation on those amounts.