How to Fill Out Form 8606 in FreeTaxUSA

To fill out Form 8606 in FreeTaxUSA, you don’t fill it out directly. The software builds it from answers you give in two separate places: your nondeductible contribution goes under Deductions/Credits, and any distribution or Roth conversion goes under Income from a 1099-R. The form comes out right only if you also enter your prior-year basis and your December 31 IRA balance when prompted. Miss either number and FreeTaxUSA will treat money you’ve already paid tax on as taxable all over again.

What to Gather Before You Open the Software

FreeTaxUSA will ask for specific figures as you move through the IRA screens. Have these in front of you:

Last year’s Form 8606, specifically the Line 14 figure. That’s your cumulative basis carried into this year. If you’ve never filed one, it’s zero.
Records of this year’s nondeductible contributions, from bank or brokerage statements or Form 5498.
Any Form 1099-R you received, with Box 1 (gross distribution), Box 2a (taxable amount), and Box 7 (distribution code) handy.
The combined December 31 fair market value of every Traditional, SEP, and SIMPLE IRA you own. Your custodian reports this on Form 5498, though it often arrives after the filing deadline.¹

The December 31 balance matters because of the pro-rata rule. Federal tax law treats all your Traditional, SEP, and SIMPLE IRAs as a single pool when calculating the taxable portion of any distribution or conversion.² You can’t withdraw only your after-tax dollars. Every distribution comes out as a proportional mix of pre-tax and after-tax money, based on the ratio of your total basis to your total IRA balance. Employer plans like 401(k)s and 403(b)s aren’t part of the pool.

Entering a Nondeductible Contribution

Contributions live under Deductions/Credits, not Income. From the menu, choose Deductions/Credits, then Common Deductions/Credits, then IRA Contributions.¹ The software asks which type of IRA you contributed to and how much.

Based on your income and whether you or your spouse is covered by an employer retirement plan, FreeTaxUSA decides whether the contribution is deductible. If your income falls in the deduction phase-out range and you want to treat the contribution as nondeductible (the normal choice for a backdoor Roth), a screen will ask whether you want to take the IRA deduction. Select “No” and enter the amount you’re treating as nondeductible. That answer is what tells FreeTaxUSA to build Form 8606 Part I rather than claim a deduction.

Within the same flow, you’ll reach an “IRA Basis and Value” page. Enter the Line 14 figure from last year’s Form 8606 here. FreeTaxUSA adds that carryover to this year’s nondeductible contribution to compute your running basis. Leave the field blank and the software assumes zero basis, which makes every future distribution or conversion fully taxable. This is the single most common Form 8606 mistake, and keeping last year’s form prevents it.

Entering a Distribution

Go to Income, then Common Income, then Retirement Income (Form 1099-R). Click “Add a 1099-R” and type in Box 1, Box 2a, and Box 7 from your form.¹

When FreeTaxUSA sees a non-rollover distribution from a Traditional IRA, it asks for the December 31 total fair market value of your Traditional, SEP, and SIMPLE IRAs. It then combines that balance with your cumulative basis and the distribution amount to work out the pro-rata exclusion. The nontaxable portion is subtracted from the gross, and the taxable figure flows to Form 1040 Line 4b while the gross distribution appears on Line 4a.

Skip the December 31 balance and the software treats everything as taxable. Same result if you forgot the prior-year basis. In both cases you pay tax twice on the same dollars.

Entering a Backdoor Roth Conversion

A backdoor Roth has two moving parts: a nondeductible contribution to a Traditional IRA, then a conversion of that money to a Roth. Your custodian reports the conversion on Form 1099-R, usually with distribution code 2 if you’re under 59½ or code 7 if you’re 59½ or older.³

In FreeTaxUSA you enter the two parts in two different places. First, under Income, Common Income, Retirement Income (Form 1099-R), enter the 1099-R. After the form data, FreeTaxUSA asks whether this was a Roth conversion. Answer yes and enter the amount converted. Then go to Deductions/Credits and enter your nondeductible contribution exactly as described above, including the prior-year basis on the IRA Basis and Value page.¹

Those two entries let the software complete Form 8606 Part II. If the nondeductible contribution and the conversion happened in the same year and you had no other pre-tax IRA money, the conversion is almost entirely tax-free. The only taxable portion is any investment gain that accrued between the contribution and the conversion.

If you do hold pre-tax dollars in any Traditional, SEP, or SIMPLE IRA, the pro-rata rule applies in full. FreeTaxUSA uses the December 31 aggregate balance to determine what percentage of the conversion represents pre-tax money, and that percentage is taxable.⁴ The taxable amount flows to Form 1040 Line 4b. Partial conversions are handled the same way, with the remaining basis carried forward to Line 14 for next year.

Entering a Recharacterization

Recharacterizations are handled inside the IRA Contributions section. Enter the original contribution type and amount, then follow the prompts about withdrawn or recharacterized amounts. The recharacterized contribution is treated as if it had gone to the second IRA from the start, and FreeTaxUSA adjusts Form 8606 to match.

One boundary matters: you can recharacterize a contribution, but you cannot recharacterize a Roth conversion. That option was removed in 2018 and is permanent.⁵ Once you convert, the conversion is final.

Married Couples and Inherited IRAs

If both spouses need Form 8606, FreeTaxUSA produces a separate form for each, even on a joint return.⁴ The software asks the IRA questions for each spouse in turn. Enter the right prior-year basis, December 31 balance, and contribution figures for the correct person; swapping them produces two wrong forms.

Inherited IRAs stay on their own Form 8606. Unless you’re a surviving spouse electing to treat the inherited IRA as your own, inherited basis cannot be combined with basis in your personal IRAs or with basis inherited from someone else. If you have both inherited and personal IRA distributions with basis in the same year, you’ll end up with two Forms 8606. When you enter the 1099-R, FreeTaxUSA asks whether it relates to an inherited IRA so the data routes to the right form.

Checking the Form Before You File

Use FreeTaxUSA’s review or print section to pull up the generated Form 8606 PDF. Two numbers deserve a close look.

Line 14 is your basis carried into next year. It should equal your cumulative nondeductible contributions minus any basis already recovered through distributions or conversions. If it looks wrong, something upstream is off, most often a missing prior-year carryover or an incorrect December 31 balance.

Then compare Form 1040 Line 4a and Line 4b. The gross distribution belongs on 4a; the taxable amount from Parts II and III of Form 8606 should flow to 4b. If 4b equals 4a, the software thinks you have no basis, and you need to go back and check your entries.

When you e-file through FreeTaxUSA, Form 8606 is attached to your submission automatically. If you’re mailing a return, confirm the printed form is in the envelope with your 1040. And if you need to file Form 8606 but aren’t otherwise required to file a return (because you made a nondeductible contribution with no other filing obligation, for instance), you can sign Form 8606 and mail it on its own to the address where you’d send a 1040.⁴

Keep the Form Long After You File

The IRS instructs you to keep every Form 8606, along with supporting Forms 5498 and 1099-R, until you’ve taken all distributions from your IRAs.⁶ For most people that’s decades. The usual three-year retention rule doesn’t apply because your basis follows the account for its life.⁷

Save each year’s Form 8606 digitally and on paper, and write down the Line 14 figure somewhere you can find it quickly next April. Without the record, reconstructing basis means pulling old returns from the IRS (which keeps them only for limited periods) or working through old statements.

1
FreeTaxUSA. Reporting a Backdoor Roth – Basic Scenario (2024 and Later)
2
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
3
Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
4
Internal Revenue Service. Instructions for Form 8606 (2025)
5
Internal Revenue Service. Retirement Plans FAQs Regarding IRAs
6
Internal Revenue Service. Instructions for Form 8606 (2025)
7
Internal Revenue Service. How Long Should I Keep Records?