If you’re an Australian expat living in the United States, or have US tax obligations, you might have heard of Form 8606. For many, it’s just another IRS form. But for Australians with individual retirement accounts (IRAs) — especially those who make after-tax contributions — Form 8606 can be the key to avoiding double taxation and unnecessary headaches. With US tax rules evolving in 2025, understanding this form is more important than ever.
What Is Form 8606 and Who Needs It?
Form 8606 is the US Internal Revenue Service’s (IRS) tool for tracking non-deductible contributions to traditional IRAs, as well as reporting conversions to Roth IRAs and distributions from these accounts. If you make after-tax contributions to a traditional IRA, fail to file Form 8606, and later withdraw from the account, you could be taxed again on money you’ve already paid tax on — a costly mistake.
- Australian expats who contribute to a US IRA while working in the States
- Anyone converting a traditional IRA to a Roth IRA (the “backdoor Roth” strategy)
- Those taking distributions from IRAs with non-deductible contributions
Even if you’re now back in Australia but still have a US IRA, you may need to file Form 8606 to protect your after-tax contributions from US taxation.
2025 Updates: What’s New for Australian Expats?
The US SECURE 2.0 Act, fully effective in 2025, has tweaked IRA rules, including higher contribution limits and expanded eligibility for Roth IRA conversions. For Australians working in the US or holding legacy IRA accounts, these changes mean:
- Higher Contribution Caps: In 2025, the IRA contribution limit is now USD $7,500 (or $8,500 if you’re 50+), making Form 8606 even more relevant for tracking non-deductible inputs.
- More Flexibility in Conversions: The backdoor Roth IRA strategy remains available, but must be carefully documented with Form 8606 to avoid IRS scrutiny.
- Australian Tax Implications: The ATO treats US IRAs differently than superannuation. Distributions may be taxable in both countries, so accurate US paperwork is vital for foreign tax credits and double-taxation agreements.
In 2025, the IRS has also increased penalties for failing to file Form 8606 when required — up to $100 per missed form, per year. That adds up fast, especially for long-term expats.
Real-World Scenarios: Why Form 8606 Matters
Let’s look at two common cases for Australians:
- Backdoor Roth IRA: Emma, a Sydney native working in San Francisco, earns too much for a direct Roth IRA contribution. She makes a non-deductible contribution to her traditional IRA, then converts it to a Roth. Without Form 8606, the IRS could tax the conversion as fully taxable income, even though the original money was after-tax.
- Returning to Australia: Jason returns to Melbourne after a decade in the US, leaving his IRA untouched. Years later, he takes a distribution. If his original non-deductible contributions weren’t tracked with Form 8606, he risks double taxation — both by the US and potentially the ATO.
In both cases, Form 8606 is what stands between you and unnecessary tax bills.
How to Get It Right: Tips for 2025 and Beyond
- Keep meticulous records of every non-deductible IRA contribution, conversion, and distribution.
- File Form 8606 annually whenever you make non-deductible contributions, convert to a Roth, or take distributions from an IRA with after-tax money.
- Coordinate with your Australian tax obligations: Documenting your US tax filings helps with ATO reporting and foreign tax credits.
- Don’t ignore the form: The IRS is ramping up enforcement and penalties in 2025.
Form 8606 isn’t just paperwork — it’s your proof against double taxation and critical for cross-border financial planning.
