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Nondeductible Contributions: IRA Contributions and Transfers (2025 IRS Guide)

This guide covers “Nondeductible Contributions” within ira contributions and transfers. The following material presents the IRS treatment of this topic, including the qualifications, exceptions, and examples in the source section. Read the rules alongside the facts of your own situation before deciding what to report, deduct, or document.

Adapted from Publication 590-A (2025), Contributions to Individual Retirement Arrangements (IRAs), published by the Internal Revenue Service. This guide retains the source edition’s years, amounts, deadlines, and examples. It is guidance for that edition, not a statement that the same figures apply to every tax year.

Context for these rules

Generally, you can deduct the lesser of:

  • The contributions to your traditional IRA for the year, or

  • The general limit (or the Kay Bailey Hutchison Spousal IRA limit, if applicable) explained earlier under How Much Can Be Contributed.

.You may be able to claim a credit for contributions to your traditional IRA. For more information, see chapter 3..

Nondeductible Contributions

Although your deduction for IRA contributions may be reduced or eliminated, contributions can be made to your IRA of up to the general limit or, if it applies, the Kay Bailey Hutchison Spousal IRA limit. The difference between your total permitted contributions and your IRA deduction, if any, is your nondeductible contribution.

Example.

You are 29 years old and single. In 2025, you were covered by a retirement plan at work. Your salary is $72,000. Your modified AGI is $90,000. You make a $7,000 IRA contribution for 2025. Because you were covered by a retirement plan and your modified AGI is above $89,000, you can’t deduct your $7,000 IRA contribution. You must designate this contribution as a nondeductible contribution by reporting it on Form 8606.

Repayment of reservist distributions.

Nondeductible contributions may include repayments of qualified reservist distributions. For more information, see Qualified reservist repayments under How Much Can Be Contributed, earlier.

Difficulty of care payments.

For contributions after December 20, 2019, you are able to elect to increase the nondeductible IRA contribution limit by some or all of the amount of difficulty of care payments, which are a type of qualified foster care payment, received. If you receive difficulty of care payments, then those amounts may increase the amount of nondeductible IRA contributions you can make but not above the $7,000 IRA deductible amount ($8,000 if you are age 50 or older). The increase to the nondeductible IRA contribution limit equals the lesser of (i) the amount of difficulty of care payments excluded from gross income, or (ii) the amount by which the deductible limit for IRA contributions exceeds the amount of the taxpayer's compensation included in gross income for the tax year.

Form 8606.

To designate contributions as nondeductible, you must file Form 8606.

You don’t have to designate a contribution as nondeductible until you file your tax return. When you file, you can even designate otherwise deductible contributions as nondeductible contributions.

You must file Form 8606 to report nondeductible contributions even if you don’t have to file a tax return for the year.

.A Form 8606 isn’t used for the year that you make a rollover from a qualified retirement plan to a traditional IRA and the rollover includes nontaxable amounts. In those situations, a Form 8606 is completed for the year you take a distribution from that IRA. See Form 8606 under Distributions Fully or Partly Taxable in Pub. 590-B..

Failure to report nondeductible contributions.

If you don’t report nondeductible contributions, all of the contributions to your traditional IRA will be treated like deductible contributions when withdrawn. All distributions from your IRA will be taxed unless you can show, with satisfactory evidence, that nondeductible contributions were made.

Penalty for overstatement.

If you overstate the amount of nondeductible contributions on your Form 8606 for any tax year, you must pay a penalty of $100 for each overstatement, unless it was due to reasonable cause.

Penalty for failure to file Form 8606.

You will have to pay a $50 penalty if you don’t file a required Form 8606, unless you can prove that the failure was due to reasonable cause.

Tax on earnings on nondeductible contributions.

As long as contributions are within the contribution limits, none of the earnings or gains on contributions (deductible or nondeductible) will be taxed until they are distributed.

Cost basis.

You will have a cost basis in your traditional IRA if you made any nondeductible contributions. Your cost basis is the sum of the nondeductible contributions to your IRA minus any withdrawals or distributions of nondeductible contributions.

.Commonly, distributions from your traditional IRAs will include both taxable and nontaxable (cost basis) amounts. See Pub. 590-B for more information on distributions..

.Recordkeeping. There is a recordkeeping worksheet, Appendix A. Summary Record of Traditional IRA(s) for 2025, that you can use to keep a record of deductible and nondeductible IRA contributions. .

Using the guidance

Keep the documents that establish the dates, amounts, and circumstances described above. References to other chapters, forms, worksheets, or earlier and later sections refer to the linked IRS publication. Check the full publication and its updates before relying on a rule for a different tax year or a situation not addressed here.

Sources and further reading

The cited U.S. government text is in the public domain. Source accessed October 28, 2026. Fynoptic has organized this material for educational use and is independent of, and not endorsed by, the IRS.

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