What Is a Non-Deductible IRA Contribution? Basis, Pro-Rata, and 8606

A non-deductible IRA contribution is money you put into a Traditional IRA that does not reduce your taxable income for the year. You still fund the account, but with after-tax dollars, and the IRS calls that after-tax total your “basis.” For 2026, the contribution limit is $7,500, or $8,600 if you are 50 or older, whether or not the contribution is deductible.¹ Tracking basis correctly on Form 8606 is what keeps the IRS from taxing that same money a second time when you eventually withdraw it.

When a Traditional IRA Contribution Becomes Non-Deductible

If neither you nor your spouse is covered by an employer-sponsored retirement plan such as a 401(k) or 403(b), you can generally deduct your full Traditional IRA contribution no matter your income.² The deduction starts shrinking once a workplace plan is in the picture and your Modified Adjusted Gross Income (MAGI) enters a phase-out range. Above the top of the range, the deduction is gone, and any contribution you still make is non-deductible.

For 2026, the Traditional IRA deduction phases out at these MAGI levels:¹

Single or head of household, covered by a workplace plan: $81,000 to $91,000
Married filing jointly, contributing spouse covered by a workplace plan: $129,000 to $149,000
Married filing jointly, contributing spouse not covered but the other spouse is: $242,000 to $252,000
Married filing separately, covered by a workplace plan: $0 to $10,000

Below the bottom number, the full deduction is available. Between the numbers, you get a partial deduction. Above the top number, none of the contribution is deductible, though you can still contribute up to the annual limit.³

How Basis Works Across Your IRAs

Every non-deductible dollar you put in adds to your basis. Basis is the running total of after-tax money in the account, and it is the portion you will not owe income tax on at withdrawal.⁴

Here is the part that trips people up: the IRS treats all of your Traditional, SEP, and SIMPLE IRAs as one combined account for basis purposes. You cannot park non-deductible contributions in a separate IRA and treat that account as if it stood alone. If you have $20,000 of after-tax contributions spread across three accounts totaling $200,000, your basis is $20,000 against the whole combined balance.⁴

The Pro-Rata Rule on Withdrawals

Because the IRS views all your Traditional IRAs as one pool, you cannot pick which dollars come out first. Every distribution is a proportional mix of taxable and non-taxable money. This is the pro-rata rule, and it comes from a federal statute requiring all IRAs to be treated as a single contract for distribution purposes.⁵

The math: divide your total basis by the combined value of all your Traditional, SEP, and SIMPLE IRAs, then multiply by the amount you are withdrawing. That figure is the tax-free portion. The rest is ordinary income.⁶

Say you have $100,000 across all your Traditional IRAs, with $15,000 of basis. Your basis ratio is 15%. Withdraw $10,000, and $1,500 comes out tax-free while $8,500 is taxable. Your remaining basis drops to $13,500.

Reporting on Form 8606

You report non-deductible contributions on IRS Form 8606, “Nondeductible IRAs.” Filing the form is the only way to establish and preserve your basis. Skip it, and the IRS has no record that you already paid taxes on those dollars, so the same money can end up taxed a second time when you take distributions.⁷

Before you fill it out, pull together:

The exact dollar amount of your current-year non-deductible contribution
Your prior-year basis, from your most recent Form 8606
The combined year-end balance of your Traditional, SEP, and SIMPLE IRAs
Any distributions or conversions you took from those accounts during the year

Line 1 captures your current-year non-deductible contribution, Line 2 carries in your prior-year basis, and later lines walk you through the updated basis and the taxable share of any distributions.⁴ Attach Form 8606 to your Form 1040. The deadline is your return’s due date, including extensions, which pushes to October 15 if you extend.⁷ If you are not otherwise required to file a return, you can sign Form 8606 and mail it in on its own.

Keep a copy of every Form 8606 you file until every one of your Traditional IRAs has been fully emptied. The IRS does not necessarily hold those records forever, and proving basis is on you.⁷

Penalties to Watch

Two penalties come directly from the Form 8606 instructions:⁴

Failing to file Form 8606 when required: $50, unless you show reasonable cause.
Overstating your non-deductible contributions on the form: $100, unless you show reasonable cause.

A costlier mistake is contributing more than the annual limit. Excess contributions are hit with a 6% excise tax for every year the excess sits in the account. You can stop the meter by pulling the excess out (along with any earnings on it) before the tax-filing deadline for that year.³

The Backdoor Roth Use Case

The most common reason to make a non-deductible contribution on purpose is the “backdoor Roth.” Roth IRAs have their own income limits. For 2026, the ability to contribute directly to a Roth phases out between $153,000 and $168,000 for single filers and between $242,000 and $252,000 for married couples filing jointly.¹ Above those thresholds, direct Roth contributions are off the table, but conversions from a Traditional IRA to a Roth have no income limit.⁸

The strategy is two steps. Make a non-deductible contribution to a Traditional IRA, then convert that money to a Roth. Because the contribution was already after-tax, the conversion generates little or no additional tax, as long as the money has not grown much before you convert. Converting soon after contributing keeps taxable earnings small.

The strategy works cleanly only if you have no other pre-tax dollars in Traditional, SEP, or SIMPLE IRAs. If you do, the pro-rata rule reaches into the conversion the same way it reaches into a withdrawal. You cannot convert just the after-tax portion; the IRS treats the conversion as coming proportionally from your entire Traditional IRA balance.⁹

Suppose you have $93,000 of pre-tax Traditional IRA money and add a $7,500 non-deductible contribution. Your total is $100,500, and only about 7.5% of it is after-tax. Convert $7,500 to a Roth, and roughly $6,940 of that conversion is taxable. A common workaround is rolling the pre-tax IRA balance into an employer 401(k) first, so only the after-tax contribution remains before you convert. The contribution and the conversion both get reported on Form 8606, with Part I tracking the contribution and Part II handling the taxable amount of the conversion.⁴

When a Roth IRA Is the Better Choice

If your income is too high for a deductible Traditional IRA contribution but low enough to contribute directly to a Roth IRA, the Roth is almost always the stronger option. Both use after-tax dollars, but qualified Roth withdrawals in retirement are entirely tax-free, and Roth IRAs carry no required minimum distributions (RMDs) during the owner’s lifetime.¹⁰

A Traditional IRA funded with non-deductible money, by contrast, still requires RMDs starting at age 73. Those RMDs include a taxable portion (the earnings) calculated under the pro-rata rule, and you carry the recordkeeping burden on Form 8606 for potentially decades. Non-deductible Traditional contributions really make sense in a narrow set of situations: your income sits above both the Traditional IRA deduction phase-out and the Roth contribution phase-out (setting up a backdoor Roth), or you want to shelter investment growth from annual taxes and expect a lower bracket in retirement.

1
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
2
Internal Revenue Service. IRA Deduction Limits
3
Internal Revenue Service. Retirement Topics – IRA Contribution Limits
4
Internal Revenue Service. 2025 Instructions for Form 8606 – Nondeductible IRAs
5
Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts
6
Internal Revenue Service. Publication 590-B (2025), Distributions From Individual Retirement Arrangements (IRAs)
7
Internal Revenue Service. Instructions for Form 8606 (2025)
8
Internal Revenue Service. Topic No. 309, Roth IRA Contributions
9
Internal Revenue Service. Rollovers of After-Tax Contributions in Retirement Plans
10
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs