How it works
The pro-rata rule is the IRS formula that decides how much of ANY Roth conversion counts as taxable income: add up every traditional, SEP and SIMPLE IRA you own, divide your after-tax basis by that total, and the resulting fraction applies to whatever slice you convert. A fresh $7,000 nondeductible contribution therefore does not sit in a clean lane while a $95,000 rollover IRA from an old job exists beside it — with about 7.4% of the pot being basis, roughly $6,480 of that $7,000 conversion lands on your tax return as ordinary income anyway. The rule is why the backdoor Roth works cleanly for some households and disappoints others, and why the standard fix is rolling pretax IRA money into an employer 401(k) before December 31, which removes it from the denominator entirely. This checker runs the arithmetic both directions: the taxable and tax-free split of your planned conversion, the basis consumed on Form 8606, and what survives for next year. Educational math for planning conversations, not tax advice.
Formula
Taxable fraction = (total IRAs − basis) ÷ total IRAs | Taxable amount = conversion × taxable fraction
Tips
- Aggregate EVERY traditional, SEP and SIMPLE IRA — the IRS ignores account walls.
- Roll pretax IRA money into a 401(k) first; employer plans are excluded from the formula.
- Convert late in the year but re-check balances near December 31, which is the measurement date.
- File Form 8606 every year you hold basis — it is your only proof the money was already taxed.
- Do conversions when income is low; the pro-rata math sets the amount, brackets set the bill.
Frequently asked questions
- What is the pro-rata rule for backdoor Roth conversions?
- It forces the taxable share of any conversion to equal the pretax percentage of ALL your traditional, SEP and SIMPLE IRAs combined. With $7,000 of basis inside a $102,000 total, about 93.1% of even a small conversion is taxed as ordinary income — the new contribution cannot be converted alone.
- How do I avoid the pro-rata rule on a backdoor Roth?
- Shrink the denominator to zero by rolling pretax IRA balances into a current employer 401(k), 403(b) or similar plan before year-end, since those plans sit outside the calculation. At a $0 IRA balance, the entire conversion becomes tax-free no matter the size.
- Does the pro-rata rule apply to 401(k) accounts?
- No — employer plans like 401(k)s and 403(b)s are excluded from the aggregation entirely. Only traditional, SEP and SIMPLE IRA balances count against your basis, which is precisely why moving rollover IRAs into a workplace plan neutralizes the rule for future years.
- What happens if I don't file Form 8606?
- Without Form 8606 there is no record that your contribution was nondeductible, so the IRS can tax the entire conversion again. Over a decade of $7,000 contributions that risks double-taxing $70,000 of already-taxed money, plus penalties and interest on top — keep every filing forever.
- Is a backdoor Roth still worth it with an existing IRA?
- Run the numbers: converting $7,000 with 90% of the pot pretax means paying ordinary rates on $6,300 for only $700 of truly new Roth room — usually poor value. Rolling the old IRA into a 401(k) first, if available, restores the clean version worth doing.