Funds that are rolled over from a traditional IRA to a qualified retirement plan (not including traditional IRAs) are considered to have come from tax-deferred contributions first. Any remaining amounts from the rollover are considered to be after-tax contributions.
Nondeductible employee contributions that are included in a rollover from a qualified employee plan to either a traditional or SEP IRA should be added to the basis of the IRA on line 2 of Form 8606, Nondeductible IRAs. If a taxpayer cannot deduct all or a portion of an allowable IRA contribution, the taxpayer can choose to make a nondeductible contribution.
To designate contributions as nondeductible, file Form 8606. Contributions that are otherwise deductible can be designated as nondeductible if the taxpayer chooses to do so.
As long as the nondeductible contributions are in the IRA, the earnings on the contributions are not taxed until distributed.
Additional Information:
Maximum Pension Plan Contributions
Instructions for Form 8606, Nondeductible IRAs
Publication 590-A Contributions to Individual Retirement Arrangements (IRAs)
Publication 590-B Distributions from Individual Retirement Arrangements (IRAs)