Form 8606 Tracks After-Tax IRA Basis

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Skip Form 8606 after a $7,500 after-tax IRA contribution and the IRS can treat that entire $7,500 as pre-tax later. The printed penalty for not filing the form is only $50. The expensive miss is paying income tax a second time on money that already cleared a U.S. paycheck or a conversion.

As of tax year 2026, the combined traditional-plus-Roth IRA cap is $7,500, or $8,600 if you are age 50 or older by year-end, and never more than your compensation for the year. Expats using a Charles Schwab IRA from Lisbon or Medellín still file the same form. Beginners use it to record a nondeductible contribution. Operators use Part II for a Roth conversion. Retirees use Part I whenever a distribution comes out of an IRA that still has basis.

This is the paperwork companion to the Roth IRA backdoor conversion guide for expats. That post covers the conversion decision. This one covers the form that keeps basis from vanishing, the $50 and $100 Form 8606 penalties, and the pro-rata rule that taxes a conversion if pre-tax IRA money is still sitting somewhere. For more in the same cluster, use the Expat Tax & Finance hub.

What is Form 8606, and when do expats have to file it?

Form 8606 is the IRS ledger for after-tax IRA dollars. The About Form 8606 page says you use it to report nondeductible contributions to traditional IRAs; distributions from traditional, SEP, or SIMPLE IRAs if you have ever made nondeductible contributions; conversions from those IRAs to Roth IRAs; and distributions from Roth IRAs.

As of the 2025 Instructions for Form 8606 (the current detailed packet as of September 2026), you file that year’s form if you made a nondeductible traditional IRA contribution, took a distribution from a traditional IRA while you had basis, converted to a Roth, or took a Roth distribution. Employer SEP or SIMPLE contributions do not count as your nondeductible contribution.

When and where the form is due

File Form 8606 with Form 1040, 1040-SR, or 1040-NR by the due date, including extensions. If you are not required to file an income tax return but you still must file Form 8606, sign it and mail it to the same IRS address and on the same timeline you would have used for Form 1040. Put your address on page 1 and sign and date page 2.

Keep every Form 8606, Form 5498, and Form 1099-R until the last dollar leaves the IRA. The instructions say you need those records to prove the nontaxable slice of later distributions. A custodian will not reconstruct your basis for you.

What are the Form 8606 penalties if I skip it?

The instructions set a $50 penalty for failing to file when you must report a nondeductible contribution, and a $100 penalty for overstating nondeductible contributions, unless you show reasonable cause. Those amounts come from IRC section 6693. They are not the cost of losing basis.

Without a filed Form 8606, a later conversion or withdrawal can look fully taxable. On a $7,500 after-tax contribution that grew to $12,000, losing the $7,500 of basis is the real bill. The $50 is a reminder, not the exposure.

You can generally amend a nondeductible-versus-deductible choice on Form 1040-X within the Form 1040-X time limit, and attach a corrected Form 8606. That is how you fix a software default that deducted a contribution you meant to keep as basis.

Does claiming the FEIE change whether I can contribute at all?

Two IRS pages, read together in September 2026, do not describe compensation the same way. Confirm the year you file before you fund the account. Publication 590-A still lists “any amounts (other than combat pay) you exclude from income, such as foreign earned income and housing costs” as not compensation. The IRS international IRA page, last reviewed August 6, 2026, says you must add excluded foreign earned income and housing amounts back when measuring the IRA contribution limit, and it walks through a 2024 example that adds $25,993 of excluded income back into the contribution test.

Do not pick a blog version of that split. Match Publication 590-A, the international page, and your preparer for the tax year before you send Charles Schwab a contribution. Excess contributions that stay in the IRA face a 6% additional tax each year on Form 5329 until you remove them. The IRS contribution-limits page also caps the 6% tax at 6% of the combined year-end value of your IRAs.

What every official source agrees on is modified AGI. For traditional IRA deduction phase-outs and Roth contribution phase-outs, you add back the foreign earned income exclusion, the foreign housing exclusion, and the foreign housing deduction. Claiming Form 2555 does not make a high earner look like a low-MAGI Roth contributor.

Data note: 2026 IRA dollar limits and MAGI ranges below come from IRS news release IR-2025-111 (November 13, 2025) and the IRS IRA contribution-limits page, checked September 2026. They apply to 2026 contributions, which you can generally make until the unextended 2026 filing due date in 2027.

Which 2026 dollar limits actually hit Form 8606?

Item (tax year 2026)	Amount	Why it matters for Form 8606
Combined traditional + Roth contribution cap	$7,500, or $8,600 if age 50+ by year-end	The cap is the most you can put in; a nondeductible amount still counts against it
Traditional IRA deduction phase-out if you are covered at work (single)	$81,000–$91,000 MAGI	Above the top of the range, the contribution is fully nondeductible and belongs on Form 8606 Part I
Same phase-out if you are covered at work (married filing jointly)	$129,000–$149,000 MAGI	Joint MAGI adds FEIE back; a “zero taxable income” FEIE return can still be fully phased out
Contributor not covered, spouse is covered (married filing jointly)	$242,000–$252,000 MAGI	Spousal IRA contributions still need joint taxable compensation and still need Form 8606 if nondeductible
Roth IRA phase-out (single / HOH)	$153,000–$168,000 MAGI	Above $168,000, a direct Roth contribution is zero; a backdoor path still needs Form 8606
Roth IRA phase-out (married filing jointly)	$242,000–$252,000 MAGI	FEIE is added back here too; low Form 1040 tax does not reopen a direct Roth

If neither you nor your spouse is covered by a workplace plan, the traditional IRA deduction phase-out for coverage does not apply. Coverage plus MAGI is what forces the contribution onto Form 8606 as nondeductible.

How does the pro-rata rule tax a conversion if I still have pre-tax IRA money?

The IRS looks at all of your traditional, SEP, and SIMPLE IRAs as one pile. Form 8606 Part I asks for this year’s nondeductible contributions, prior-year basis, the December 31 value of all those IRAs (plus outstanding rollovers), and distributions or conversions. Basis comes out in proportion to the whole balance, not from the new after-tax dollars you just deposited.

Line 6 is the year-end value trap. A statement from the custodian should arrive by January 31 showing each IRA’s December 31 value. If you received a distribution after November 1 and rolled it within 60 days in the next calendar year, that outstanding rollover still belongs on line 6. Leaving it off inflates the nontaxable percentage and can trigger the $100 overstatement penalty.

Part III is not a substitute for Part I

Roth distributions have their own ordering rules on Part III. A conversion reported on Part II still needs Part I in the same year if the converted amount came from a traditional IRA that had basis or a mix of basis and pre-tax money. Do not file Part III alone and assume the conversion basis was recorded.

A Form 8606 filing checklist for a year abroad

1. Confirm you had a valid contribution: compensation rules for that tax year, plus the $7,500 / $8,600 cap, plus Roth MAGI if the money went straight to a Roth.
2. Decide deductible versus nondeductible using MAGI with FEIE and housing amounts added back, and whether you or your spouse was covered at work.
3. Collect every Form 5498 and the December 31 fair-market values for traditional, SEP, and SIMPLE IRAs, including IRAs you opened only to park a backdoor contribution.
4. Complete Part I for the nondeductible contribution and any distribution or conversion from those IRAs. Carry line 14 basis to next year.
5. Complete Part II if you converted. If pre-tax balances remain, expect a taxable slice under the pro-rata formula.
6. Attach Form 8606 to the 1040, or mail it solo if you have no 1040 filing requirement. Keep a signed copy with the Form 5498.
7. If last year’s form is missing, file it late with a short reasonable-cause statement rather than converting as if basis were zero.

Families: a spousal IRA is allowed on a joint return when one spouse has taxable compensation, but combined contributions cannot exceed that compensation. Each spouse who makes a nondeductible contribution needs their own Form 8606. Retirees: a Qualified Charitable Distribution and some repaid disaster or emergency distributions have special Form 8606 instructions; do not assume a QCD uses basis the same way a cash withdrawal does.

The $50 form is the cheap part

Form 8606 is how after-tax IRA money stays after-tax when you live outside the United States. The 2026 contribution cap is $7,500 ($8,600 at 50+). MAGI for deduction and Roth tests adds FEIE back. The compensation test for contribution room still has to be read from Publication 590-A and the IRS international IRA page for the year you file. None of that math helps if the basis never hits Ogden on a signed Form 8606.

File it with the return, keep the 5498s, and do not convert a mixed IRA pile without running the pro-rata fraction first.

Data notes / Sources checked

• About Form 8606 — what the form reports (nondeductible contributions, certain distributions, conversions, Roth distributions).
• Instructions for Form 8606 — who must file, when and where, $50 and $100 penalties, recordkeeping, line 6 year-end values, separate form per spouse.
• IR-2025-111 — 2026 IRA cap $7,500 / $8,600 catch-up, traditional deduction phase-outs, Roth MAGI ranges.
• IRS IRA contribution limits — cap versus compensation, 6% excess contribution tax.
• IRS international IRA page — add-back example for excluded foreign earned income (page last reviewed August 6, 2026).
• Publication 590-A — compensation list that still treats excluded foreign earned income as not compensation; MAGI add-backs for deduction limits.
• 26 U.S.C. § 6693 — failure-to-file and overstatement penalties on designated nondeductible IRA contributions.
• GovInfo U.S. Code § 6693 — official U.S. Code listing of the same penalty statute.