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How the Backdoor Roth Pro-Rata Rule Works (With Examples)

The Backdoor Roth IRA is a common strategy for high-income earners who are not allowed to contribute directly to a Roth IRA. On paper, the strategy looks simple. In practice, many people trigger unexpected taxes because of the pro-rata rule.

This article explains how the Backdoor Roth pro-rata rule works, why it exists, how to calculate it, and how to avoid common mistakes. If you want to skip the math, you can use our calculator to see the tax impact instantly.

What Is a Backdoor Roth IRA?

A Backdoor Roth IRA is a two-step process:

  1. Contribute after-tax money to a traditional IRA (a non-deductible contribution).
  2. Convert that traditional IRA to a Roth IRA.

Because Roth conversions are allowed at any income level, this effectively bypasses the Roth income limits. If you have no other traditional IRA money, the conversion is usually close to tax-free. The complication appears when you already have pre-tax IRA balances.

What Is the Pro-Rata Rule?

The pro-rata rule is an IRS rule that determines how much of your Roth conversion is taxable when you have both pre-tax and after-tax money in IRAs. The IRS does not let you choose which dollars you convert. Instead, it treats all of your IRAs as one combined account and assumes each conversion contains a proportional mix of pre-tax and after-tax funds. This rule exists to prevent taxpayers from selectively converting only after-tax dollars.

Which Accounts Are Included?
Only non-Roth IRAs count toward the calculation.

Included

  • Traditional IRAs
  • Rollover IRAs
  • SEP IRAs
  • SIMPLE IRAs

Not included

  • 401(k), 403(b), and 457 plans
  • Roth IRAs
  • Inherited IRAs (separate treatment)
The Pro-Rata Formula
Applied based on your balances at year-end (December 31).

After-tax IRA basis ÷ Total value of all non-Roth IRAs = Tax-free percentage of the conversion

The remaining percentage is taxable as ordinary income.

This calculation applies even if the conversion happened earlier in the year.

Simple Example: No Other IRAs
  • You contribute $6,500 (after-tax) to a traditional IRA.
  • After-tax basis: $6,500
  • Total IRA balance: $6,500
  • You convert $6,500 to a Roth.

Result: 100% tax-free, $0 taxable.

This is the ideal Backdoor Roth scenario.

Example With the Pro-Rata Rule

You have:

  • $6,500 of after-tax contributions in a traditional IRA
  • $93,500 in a rollover IRA from an old job
  • Total non-Roth IRA balance: $100,000

You convert $6,500 to a Roth.

Pro-rata calculation:

  • After-tax percentage: 6.5%
  • Tax-free portion: ~$423
  • Taxable portion: ~$6,077

Even though you only converted $6,500, most of it is taxable because most of your IRA money is pre-tax. You can model this precisely using the Backdoor Roth Pro-Rata Calculator.

Try the calculator

Why December 31 Matters

The IRS looks at your IRA balances on December 31, not the day of the conversion.

This means:

  • Rolling money out of an IRA after converting does not help.
  • The balance must be reduced before year-end.
  • Many people accidentally trigger pro-rata taxes by missing this timing detail.
Common Mistakes People Make
Quick checklist of avoidable errors.
  • Forgetting old rollover IRAs — even a dormant IRA from years ago counts.
  • Assuming employer plans count — 401(k)s do not affect the pro-rata rule.
  • Doing the math manually — the calculation gets error-prone when balances change mid-year.
  • Ignoring Form 8606 — this form tracks after-tax basis; errors can cause double taxation later.

How to Avoid the Pro-Rata Rule

Option 1: Roll Pre-Tax IRAs Into a 401(k)

  • If your employer plan allows roll-ins:
  • Move pre-tax IRA funds into the 401(k)
  • Leave only after-tax contributions in the IRA
  • Convert cleanly

Because 401(k)s are excluded, this often results in a 0% taxable conversion.

Option 2: Convert Everything (Usually Not Ideal)

You can convert all IRA balances to Roth and pay the tax. This only makes sense in limited situations, such as temporarily low income years.

How This Is Reported to the IRS
All reported on IRS Form 8606.

The pro-rata calculation is reported on IRS Form 8606. This form:

  • Tracks your after-tax basis
  • Calculates taxable vs tax-free conversion amounts
  • Carries unused basis forward to future years

Incorrect Form 8606 reporting is one of the most common IRA tax errors.

Use the Calculator to Avoid Surprises
Model different scenarios before converting.

Because the pro-rata rule depends on year-end balances, partial conversions, and prior basis, manual estimates are often wrong.

Our Backdoor Roth Pro-Rata Calculator lets you:

  • Enter current IRA balances
  • See taxable vs tax-free amounts instantly
  • Model different scenarios before converting
Key Takeaways
  • The pro-rata rule forces proportional taxation across all IRAs.
  • You cannot isolate after-tax dollars for conversion.
  • December 31 balances control the outcome.
  • Employer plans do not count.
  • A clean Backdoor Roth usually requires zero pre-tax IRAs.

This rule turns a “simple” strategy into a math problem. Using a calculator and planning before year-end prevents costly surprises.