Deorbit Plan

Pro-rata rule calculator: backdoor Roth and IRA basis

How much of a Roth conversion is taxable when your traditional IRAs hold after-tax money

By the Deorbit Plan editorial team, a Berrydyne program · Last reviewed · Topic: Roth conversions

What it computes

If you have made nondeductible (after-tax) contributions to a traditional IRA, you cannot choose to convert only the after-tax dollars. The tax code treats all your traditional, SEP and SIMPLE IRAs as one account valued at the end of the year[10], so every conversion or withdrawal is part basis and part taxable, in proportion. Form 8606 does the arithmetic[9]: basis divided by the year-end value of all those IRAs plus the year’s withdrawals and conversions gives the nontaxable share[11]. This calculator fills in those lines.

Pro-rata rule calculator (Form 8606)

Of your $7,500 conversion, $6,937.50 is taxable: basis is 7.5% of all your traditional IRA money (0.075 on Form 8606 line 10), so only that share comes out tax-free, and $6,937.50 of basis carries to next year.

Form 8606 Part I, lines 5–14

LineWhat it isAmount
5Total basis (after-tax contributions not yet recovered)$7,500.00
6Value of all traditional, SEP and SIMPLE IRAs on December 31, plus outstanding rollovers$92,500.00
7Withdrawals this year (not conversions or rollovers)$0.00
8Amount converted to Roth this year$7,500.00
9Lines 6 + 7 + 8$100,000.00
10Line 5 ÷ line 9 (nontaxable share)0.075
11Nontaxable part of the conversion (8 × 10)$562.50
12Nontaxable part of the withdrawals (7 × 10)$0.00
13Nontaxable total (11 + 12)$562.50
14Basis carried to next year (5 − 13)$6,937.50
  • Taxable conversion: $6,937.50.
  • With no traditional IRA balance left on December 31 (for example, pre-tax money rolled into a workplace plan that accepts it before year end), line 10 would be 1.000 and the taxable conversion $0.00.

Line 10 is rounded to 3 decimal places and capped at 1.000, as the form directs. The rule looks at the year-end balance, so a rollover or contribution after the conversion but before December 31 still changes the result.

Worked example

You contribute $7,500 to a traditional IRA without a deduction and convert it to a Roth a week later (the backdoor Roth). But you also have an old rollover IRA worth $92,500 on December 31. Line 9 is $100,000, so line 10 is $7,500 ÷ $100,000 = 0.075: only $562.50 of the conversion is tax-free and $6,937.50 is taxable. The rest of the basis, $6,937.50, stays in the old IRA for later.

Roll that old IRA into a workplace plan that accepts it before December 31 and line 6 drops to $0: line 10 becomes 1.000 and the taxable part of the conversion $0.00. That is why the order of the steps, and the year-end balance, matter more than which account the conversion came from.

What it ignores

  • The income tax on the taxable part. Use the Roth conversion tax calculator for that.
  • Contributions made next year for this year, recharacterizations, and repayments of disaster or other special distributions, which adjust the form’s lines.
  • Inherited IRAs, which are figured separately, and a spouse’s IRAs (each person has a separate Form 8606).
  • After-tax money in a 401(k), which follows the plan’s own rules for in-plan or direct Roth rollovers.
  • Whether a workplace plan will accept a rollover of pre-tax IRA money.

The rule behind it

The full explanation, with sources, is in Backdoor and mega-backdoor Roth, and the pro-rata trap.

See it over a full plan

Once the conversion’s taxable part is known, the question is what it does over a whole plan. The simulator runs multi-year conversion strategies with their tax, IRMAA and RMD effects. Open it in the simulator →

If you already have a saved plan, the link only takes you to the right panel; your plan is not changed.

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This tool shows how the rules work. It is not financial, tax or investment advice. See the disclaimer.

Sources