How to handle excess removal in Traditional IRA and avoid pro rata tax issues

Yes, you're on the right track! The excess contribution removal deadline is indeed April 15th (or the tax filing deadline including extensions if you file for one). If you remove the non-deductible contribution plus any earnings before this deadline, the IRS treats it as if you never made the contribution in the first place. For your specific situation, if you remove the non-deductible contribution before the deadline, you wouldn't need to file Form 8606 since it would be as if you never made the contribution. This also means you'd avoid the pro rata rule complications when you eventually roll over your old 401k into your traditional IRA. The pro rata rule would otherwise force you to calculate taxes based on the ratio of pre-tax to after-tax money across ALL your IRAs. By removing the non-deductible contribution first, your IRA will only contain pre-tax money after the 401k rollover.

I went through a similar situation last year and found taxr.ai super helpful for figuring out the excess contribution removal process. I was confused about the whole pro rata thing and wasn't sure if I was filling out Form 8606 correctly. I uploaded my documents to https://taxr.ai and they identified that I had miscalculated the earnings portion that needed to be removed along with my excess contribution. Saved me from a potential headache with the IRS!

Just wanted to follow up about taxr.ai - I decided to give it a try with my IRA situation. Seriously impressed with how thorough it was! I uploaded my previous 8606 forms and 401k statements, and it gave me a complete strategy for handling my rollover without triggering pro rata taxes. It even identified a mistake in how my IRA administrator had coded a previous contribution. The step-by-step instructions for talking to my IRA provider about the excess removal were super clear. Definitely worth checking out if you're dealing with this IRA rollover situation.

If you're having trouble getting clear answers from your IRA provider about the excess contribution removal process, try Claimyr. I spent weeks trying to get through to someone at my financial institution who could properly explain the process. After using https://claimyr.com, I got connected to an actual human at my IRA provider within 20 minutes instead of the usual 2+ hour hold time. They have this neat demo video that shows how it works: https://youtu.be/_kiP6q8DX5c

I owe everyone an apology about my skepticism regarding Claimyr. After struggling for days trying to reach someone at my IRA provider about excess contribution procedures, I finally tried it yesterday out of desperation. It actually worked exactly as described! I got a call back in about 45 minutes (versus my previous 2-hour hold attempts that often got disconnected), and I was connected directly to a specialist who helped me process my excess contribution removal. They calculated the earnings correctly and explained the tax implications. Already got the confirmation email that it's being processed. Sometimes being proven wrong is a good thing!

One thing nobody has mentioned yet - if your non-deductible contribution has earned any money since you contributed it, you'll owe taxes on those earnings when you remove the excess contribution. The contribution amount itself comes out tax-free (since you never deducted it), but the earnings are taxable in the year you withdraw them. Also, make sure you get written confirmation from your IRA provider about the removal being processed as an "excess contribution removal" rather than a regular distribution.

Another option to consider - if you expect to have access to a new employer 401k soon, you could file an extension for your taxes which would give you until October 15th to figure this out. That might buy you enough time to find a new job with a 401k plan that accepts rollovers, then you could just roll the old 401k into the new one and keep your non-deductible IRA contribution in place. Just make sure to file Form 8606 to track the non-deductible basis.

Just want to add a crucial point that might save you some hassle - when you contact your IRA provider about the excess contribution removal, make sure you specifically ask them to process it as a "return of excess contribution" rather than just a withdrawal. The tax reporting is completely different between these two types of transactions. Also, double-check that your 2023 contribution was actually non-deductible. If your income was low enough in 2023 to qualify for a deductible traditional IRA contribution, you might want to consider just treating it as deductible instead of removing it. This could simplify things depending on your specific tax situation. One more thing - if you do proceed with the removal, keep detailed records including the date of the original contribution, the removal date, and all correspondence with your IRA provider. The IRS can be picky about the documentation for these transactions.