Two pieces of retirement-account paperwork collided in 2020: the suspension of required minimum distributions (RMDs) and Form 8606, the IRS form that tracks non-deductible money in IRAs. Both still matter for anyone who took money out of an IRA that year or made after-tax contributions.
The 2020 RMD waiver
Normally, owners of traditional IRAs and most workplace plans must start taking RMDs from a set age, and beneficiaries of inherited accounts must take distributions too. The CARES Act, signed on 27 March 2020, waived RMDs for 2020 because markets had fallen sharply and forced sales would have locked in losses.
Some people had already taken their 2020 distribution before the law passed. In June 2020 the IRS issued Notice 2020-51, which allowed people who had received what would have been RMDs in 2020 to put the money back into an account by 31 August 2020, avoiding tax on it.
Form 8606
Form 8606 is used to report:
- non-deductible contributions to a traditional IRA, which create "basis" that will not be taxed again when withdrawn;
- distributions from traditional, SEP or SIMPLE IRAs when you have basis, so the IRS can work out how much is taxable;
- conversions from a traditional IRA to a Roth IRA;
- distributions from Roth IRAs in some cases.
The key rule is the pro-rata rule: when you take money from a traditional IRA, each dollar is treated as partly taxable and partly basis in proportion to the totals across all your traditional, SEP and SIMPLE IRAs. Form 8606 is where that calculation happens.
Why people miss it
Many people make a non-deductible contribution, never file Form 8606, and then pay tax twice on the same money years later because there is no record of the basis. Anyone who used the "backdoor" Roth strategy (our explainer) should have a Form 8606 for each year.
The RMD age today
RMD ages have changed several times: from 70½ to 72 under the SECURE Act of 2019, to 73 from 2023 under SECURE 2.0, and to 75 from 2033. Check the current rules for your birth year.
Sources
General information about the law as it stood when this page was updated, not financial, tax or legal advice. Rules and limits change; check the official source or a qualified adviser before acting.