What is Form 8606 filing requirement for IRA contributions?

Wait, I'm confused. If they didn't contribute anything before these 3 years we're talking about, wouldn't the basis start at $0 for the very first form, then become $6,000 for the second year, and then $12,000 for the third year? Since basis is the running total of non-deductible contributions?

You're absolutely right about the progression. If these were the first-ever non-deductible contributions, then the basis would indeed start at $0 before the first contribution. Then after making that first $6,000 contribution, the basis becomes $6,000 for the end of year one. For the second year, you'd start with the $6,000 basis from the previous year, add the new $6,000 contribution, ending with $12,000. Then for the third year, you'd start with $12,000 and add another $6,000, ending with $18,000. Thanks for that clarification.

Does it work if you have rollovers too? I contributed to a Traditional IRA for years, then did a rollover to a Roth but I'm not sure if I filed the 8606 correctly, if at all. Would this help sort that out?

I'm skeptical - how does it know what contributions were deductible vs non-deductible if you haven't been tracking that yourself? The IRS doesn't even have that info until you file the 8606.

It absolutely works with rollovers too. The system recognizes the different types of IRA transactions and helps you categorize them correctly. It will identify traditional-to-Roth conversions and guide you through reporting them properly on Form 8606. As for determining deductible vs. non-deductible contributions, the tool asks you questions about your income during those years and whether you were covered by a workplace retirement plan. It then applies the IRS income limits to help determine which contributions were likely deductible. You can also manually specify if you know which were which from your records. It's impressively thorough.

How exactly does this work? Do they somehow have a special line to the IRS or something? Seems too good to be true considering how impossible it is to reach anyone there.

Yeah right. I've been calling the IRS for MONTHS trying to fix a different issue. There's no way some random service can get through when the IRS literally hangs up on people because their call volume is too high. Sounds like a waste of money to me.

They don't have a special line - they use technology to handle the waiting process for you. It's like having someone else sit on hold so you don't have to. The service places the call and uses automated systems to navigate the IRS phone tree and wait in the queue. When an actual IRS agent picks up, they connect the call to your phone so you can speak directly with the agent. No magic involved - they're just doing the tedious waiting part for you. It's particularly useful if you've been experiencing the "courtesy disconnect" where the IRS hangs up because their call volume is too high. The service keeps attempting calls until they get through successfully.

Do you remember if you had to pay the $50 penalty for each year that Form 8606 wasn't filed? I've read conflicting things online - some say the penalty is automatically applied, others say the IRS often waives it if you voluntarily file the missing forms.

I didn't end up paying any penalties at all. I included a brief letter explaining that I hadn't been aware of the filing requirement but was now submitting the forms to properly track my basis. I believe the $50 penalty is technically on the books, but in practice, the IRS seems to be reasonable about waiving it when people proactively fix the issue. I think they care more about getting people compliant than collecting the relatively small penalty. Just make sure your calculations are accurate and consistent across all years.

Does anyone know if you can e-file prior year 8606 forms or do they have to be mailed in? I hate dealing with paper forms.