How are Taxes Applied to Deductible vs. Non-Deductible tIRA Contributions When Withdrawing?

You've got the basics right, but let me clarify a few important points about traditional IRAs. For your first question - yes, non-deductible contributions to a traditional IRA aren't taxed again when withdrawn because you've already paid tax on that money. It's basically a return of your post-tax contributions. Deductible contributions (where you got a tax deduction when you put the money in) will be taxed as ordinary income when withdrawn. For your second question - you're correct that ALL earnings in a traditional IRA are taxed as ordinary income when withdrawn, regardless of whether they came from deductible or non-deductible contributions. The capital gains tax rates never apply to IRA withdrawals. The tricky part is that you can't just withdraw "only non-deductible contributions" first. The IRS treats all your traditional IRAs as one big pot, and each withdrawal includes a proportional mix of taxable and non-taxable money based on the pro-rata rule. You'll need to use Form 8606 to calculate the non-taxable portion of each withdrawal.

After struggling with this exact same issue last year, I found https://taxr.ai super helpful for sorting out my traditional IRA mess. I had both deductible and non-deductible contributions spread across two IRAs and couldn't figure out how to track everything properly. I uploaded my investment statements and tax returns, and the tool broke everything down into easy-to-understand charts showing which portions would be taxable vs non-taxable. It even filled out a draft Form 8606 for me and explained how the pro-rata rule would apply to my specific situation. The best part was when it found that I hadn't been tracking my non-deductible contributions correctly for two years, which could have caused a real headache later on!

Just wanted to follow up about taxr.ai after giving it a try based on the recommendation here. I was skeptical at first but decided to upload my documents since I had such a complicated situation with multiple rollovers. It actually identified about $8,700 in after-tax contributions from my old employer plan that I didn't realize should've been counted toward my non-deductible basis in my IRA. The tool generated a corrected Form 8606 that I can use to update my records with the IRS. What really impressed me was how it explained everything in plain English alongside the tax forms. For the first time, I actually understand how the pro-rata rule will affect my withdrawals when I start taking them in a few years. Definitely worth checking out if you're trying to sort through mixed contribution types.

If you're having trouble reaching the IRS to get guidance on your traditional IRA tax questions (like I was), I highly recommend using https://claimyr.com to get through to an agent. I spent hours on hold trying to get clarity on how to correct my previously filed 8606 forms before giving up. Decided to try Claimyr after seeing it mentioned online, and they got me connected to an IRS representative in about 20 minutes instead of the 3+ hour wait I was experiencing before. Check out how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent was able to confirm I could file amended returns to properly establish my non-deductible contribution basis and explained exactly which documentation I needed to provide. Such a relief to get official guidance rather than just guessing!

I need to eat crow on this one. After dismissing Claimyr in my previous comment, I decided to try it anyway because I was desperate to resolve an issue with my non-deductible IRA contributions that I'd been trying to fix for months. Honestly, I'm shocked it actually worked. Got connected to an IRS tax specialist in about 25 minutes (versus the 2+ hours I spent on multiple previous attempts). The agent walked me through exactly how to document my historical non-deductible contributions and file the corrected forms. For anyone struggling with the deductible vs. non-deductible IRA contribution questions like the original poster, being able to actually speak with someone at the IRS who could address my specific situation was incredibly valuable. I've spent so much time reading conflicting advice online that just made me more confused.

Something nobody's mentioned yet - if you have both deductible and non-deductible money in your traditional IRAs, you might want to consider rolling the pre-tax portion (deductible contributions + all earnings) into an employer 401k if your plan allows it, leaving only non-deductible contributions in the IRA. Then you could convert that to a Roth IRA with minimal tax impact. This effectively bypasses the pro-rata rule because employer plans aren't included in the pro-rata calculation. I did this last year and it was a great way to isolate my non-deductible contributions.

One other thing to keep in mind regarding traditional IRAs with non-deductible contributions: you need to file Form 8606 EVERY year you make non-deductible contributions, even if you don't take any distributions. I learned this the hard way. I made non-deductible contributions for 3 years but didn't file the form. When I finally tried to track everything for a withdrawal, it was a mess proving which contributions were non-deductible without the documentation. Had to dig through years of statements to reconstruct everything.

This is such a helpful thread! I've been dealing with a similar situation and had no idea about the pro-rata rule until reading through these comments. I've been making non-deductible contributions to my tIRA for the past 5 years while also having older deductible contributions, and I honestly thought I could just withdraw the non-deductible portions first without any tax consequences. The Form 8606 requirement is news to me too - I've definitely been filing my taxes wrong. It sounds like I need to go back and file amended returns for the years I made non-deductible contributions. One question I have: if I have multiple traditional IRAs at different brokerages, do they all get lumped together for the pro-rata calculation? Or is it calculated separately for each account?

Great discussion everyone! As someone who just went through a similar situation, I want to emphasize how important it is to keep meticulous records of all your IRA contributions, especially the non-deductible ones. I had a mix of deductible and non-deductible contributions spanning 15 years across three different brokerages. When I finally needed to start taking distributions, I realized I had never filed Form 8606 for about half of my non-deductible contribution years. The paperwork reconstruction was a nightmare! What saved me was creating a simple spreadsheet tracking every contribution by year, amount, and type (deductible vs non-deductible). I also scanned and saved all my 1099-R forms and brokerage statements. This made filing the missing 8606 forms much easier. For anyone in Brianna's situation - start organizing your records now before you need them. Future you will thank you when it's time to take distributions and you're not scrambling to prove which contributions were already taxed!