This form includes three separate parts.
Part I covers nondeductible contributions to your traditional IRAs. This part is used to report your nondeductible contributions for 2010, to keep track of the total amount of nondeductible contributions that you've made over the years, and to figure the taxable amount of any IRA distribution to you, in the event that you've made any nondeductible contributions.
Part II is used to calculate the taxable amount of any amounts you may have converted from a traditional IRA to a Roth IRA.
Part III is used for distributions from Roth IRAs.
The program includes two copies of Form 8606, one for you and one for your spouse.
We calculate any nondeductible contributions that you may have made to your traditional IRAs for 2010 on our IRA Contribution Worksheet. We then automatically carry the amount of the nondeductible contributions to line 1 of Form 8606.
If there's an amount on line 5 of Form 8606, then part of the distributions that you receive from your traditional IRAs will be free from tax. Part I of the form calculates the taxable and nontaxable part of your distribution in these circumstances.
When you "convert" funds from your traditional IRA to a Roth IRA, you're treated as if you had received a regular taxable distribution from the traditional IRA.
In general, you don't have to sign this form. Sign this form only if you are not filing a Form 1040 or Form 1040A at the same time (e.g., if you have no income, and you do not have to file).
Until all distributions are made from your IRA(s), keep for your records copies of this form, Form 1040 (or 1040A), 1099-R, and Form 5498 or similar statements showing IRA contributions and the value of your IRA(s). See the IRS instructions for more information.
You can change a nondeductible contribution to a traditional IRA made on a prior year's return to a deductible contribution or vice versa. To amend a Form 8606, complete a new Form 8606 with the revised information and attach it to a Form 1040X (Amended US Individual Income Tax Return). The amount as changed must have been permissible on the original return. Send both of the forms to the Internal Revenue Service Center for your area as shown in the instructions for Form 1040X.
You may be liable for a $50 penalty if you are required to file Form 8606 to report a nondeductible contribution to a traditional IRA but fail to do so. The penalty may be excused for a reasonable cause.