How the pro-rata rule works
Every dollar that leaves your traditional IRAs, whether a withdrawal or a Roth conversion, carries the same mix of after-tax basis and pre-tax money as your combined balance. Basis is the after-tax money inside: nondeductible contributions to a traditional IRA plus any after-tax amounts rolled in from a workplace plan, less basis you have already recovered.
The rule comes from section 408(d)(2) of the tax code: for taxing distributions, all of a person’s IRAs other than Roth IRAs are treated as one contract, all distributions in a year as one distribution, and values are measured at the end of the calendar year. Choosing a particular account, investment or day within the year therefore doesn’t change the answer. The ratio is your basis divided by the December 31 value of all traditional, SEP and SIMPLE IRAs plus the year’s withdrawals and conversions.
The calculation runs on Form 8606, which you file for any year you make a nondeductible contribution, and for any year you withdraw or convert while you have basis. Its line 14 carries unused basis forward, so a tax-free share you don’t use this year isn’t lost, only deferred to later withdrawals. Keep every Form 8606 until the IRAs are empty; without them, you may be unable to show your basis and could pay tax on the same dollars twice.
What the calculation counts, and when
The denominator is where most surprises come from. It includes every traditional IRA you own, among them a rollover IRA full of old 401(k) money, your pre-tax SEP IRA and SIMPLE IRA balances, and any IRA-to-IRA rollover still in transit at year-end. It leaves out Roth IRAs, workplace plans such as a 401(k), 403(b), 457(b) or the TSP, inherited IRAs, which get a separate Form 8606 for each person you inherited from, and your spouse’s IRAs, since each spouse files a separate form.
Timing works against intuition. The balance used is the one on December 31 of the year of the conversion, not the balance on the day you converted. Converting in January and then rolling a former employer’s 401(k) into an IRA in November pulls that 401(k) money into January’s calculation. The reverse also works: moving pre-tax IRA money into a workplace plan before December 31 takes it out of that year’s denominator.
Because values are measured at year-end, market gains or losses between the conversion and December 31 also nudge the ratio. The table below summarizes what counts.
How to avoid the pro-rata trap on a backdoor Roth
The rule matters most to people above the Roth IRA income limits who use a backdoor Roth IRA: a nondeductible traditional IRA contribution, up to $7,500 for 2026 or $8,600 from age 50, followed by a conversion. With no other traditional IRA money, the conversion is almost all basis, so only growth before the conversion is taxed.
Add a pre-tax IRA and the math changes. In the example below, $67,500 of old rollover money means only 10% of a $7,500 conversion is tax-free, so $6,750 is taxed as ordinary income and $6,750 of basis stays behind in the traditional IRA, to be recovered on later withdrawals. Using a separate account for the contribution doesn’t help, since the IRS counts them all.
There are three usual responses. Some people roll their pre-tax IRA money into a current employer’s plan, if it accepts incoming rollovers; only pre-tax dollars can go, which leaves the basis in the IRA ready to convert. Some convert the whole pre-tax balance, accepting the tax, often in a lower-income year. Others skip the backdoor while a large pre-tax balance remains. Each has a cost to weigh against the future tax-free growth.
Pro-rata rules inside a 401(k)
Workplace plans have a pro-rata rule of their own, applied inside each plan rather than across your IRAs. If a 401(k) holds both pre-tax money and after-tax contributions, any partial distribution carries a proportional share of each: from a $200,000 account with $40,000 of after-tax money, a $50,000 withdrawal includes $10,000 of it.
IRS Notice 2014-54 softened the effect when money leaves a plan. A distribution sent to several destinations at once is treated as a single distribution, so you can send all of the pre-tax money, including the earnings on your after-tax contributions, to a traditional IRA and the after-tax contributions alone to a Roth IRA, tax-free. What you can’t do is take out just the after-tax dollars and leave the rest invested in the plan.
That split is what lets people move after-tax 401(k) money into a Roth IRA when they leave a job, one route used in a mega backdoor Roth.
Common pro-rata mistakes
Most pro-rata errors are timing or paperwork slips that surface only when the tax return is prepared, often months after the money has moved and too late to change December 31 balances. Because the result depends on every IRA you hold, list them all, with their expected year-end values and any basis from earlier Forms 8606, before making a nondeductible contribution or a conversion. These are the slips to watch for:
- Converting from a new, basis-only IRA and assuming your other IRAs don’t count.
- Rolling an old 401(k) into an IRA later in the same year as a backdoor Roth conversion.
- Forgetting that pre-tax SEP and SIMPLE IRA balances are part of the calculation.
- Not filing Form 8606 for a nondeductible contribution, which carries a $50 penalty and risks losing track of basis.
- Reporting a conversion as fully taxable because last year’s basis was never carried forward.
- Counting a spouse’s IRA or an inherited IRA in your own ratio, when each is figured separately.
Illustrative numbers
A 2026 backdoor Roth with $67,500 of old rollover money
- Basis
- Nondeductible contributions and after-tax rollovers not yet recovered (Form 8606, line 5)
- Dec 31 value
- Year-end balance of every traditional, SEP and SIMPLE IRA, plus IRA-to-IRA rollovers in transit (line 6)
- Distributions
- Withdrawals during the year, not counting rollovers, QCDs or conversions (line 7)
- Conversions
- Net amount converted to Roth IRAs during the year (line 8)
The share is capped at 100%; multiply it by the amount withdrawn or converted to find the tax-free part.
Nondeductible contribution for 2026 (basis)$7,500
Pre-tax rollover IRA on December 31, 2026$67,500
Converted to a Roth IRA in 2026$7,500
Tax-free share: $7,500 ÷ ($67,500 + $7,500)10%
Taxable part of the conversion$6,750
Basis carried to 2027 on Form 8606$6,750
Only $750 of the conversion is tax-free. At a 24% marginal tax rate, the taxable $6,750 costs about $1,620. Had the $67,500 moved into a workplace plan before December 31, the share would have been 100% and the conversion close to tax-free. The example assumes no growth before year-end.
At a glance
Which accounts count in the IRA pro-rata calculation
| Account | Counted? | Why |
|---|---|---|
| Traditional IRA, including a rollover IRA | Yes | Every one you own, at its December 31 value |
| Pre-tax SEP IRA and SIMPLE IRA | Yes | Treated as traditional IRAs on Form 8606 |
| IRA-to-IRA rollover in transit at year-end | Yes | Added to the December 31 value |
| Roth IRA, Roth SEP or Roth SIMPLE IRA | No | Roth accounts follow their own ordering rules |
| 401(k), 403(b), 457(b) or TSP | No | Workplace plans are not IRAs |
| Inherited IRA (unless a spouse treats it as their own) | No | Figured on a separate Form 8606 per decedent |
| Your spouse’s IRAs | No | Each spouse files a separate Form 8606 |
Put it in your plan
Pro-rata rule in MoneyWhatIf
MoneyWhatIf treats a traditional IRA balance as entirely pre-tax, so it applies no pro-rata split: a Roth conversion is posted as a transfer from a pre-tax account to a Roth, and the converted amount is included in ordinary income for that year. If you hold nondeductible IRA money, your actual conversion tax can be lower than the plan shows. The Tax Planning page compares conversion brackets against converting nothing, showing the effect on tax, required withdrawals, Medicare surcharges and ending after-tax wealth.
Open your forecastCommon questions
Pro-rata rule FAQs
Does the pro-rata rule apply to Roth IRAs?
Not in the same way. Roth IRAs are left out of the traditional IRA calculation, and a Roth IRA distribution follows ordering rules instead: regular contributions come out first, then conversions in the order made, then earnings. So a Roth balance never dilutes the basis in your traditional IRAs, and holding one doesn’t change what a conversion costs.
Can I avoid the pro-rata rule by converting from a separate IRA?
No. The law treats all of your traditional, SEP and SIMPLE IRAs as one contract, so opening a new IRA for the nondeductible contribution and converting from it gives the same result as converting from any other. The ratio only changes if the year-end denominator changes, for example by rolling pre-tax IRA money into a workplace plan, or if you convert everything.
Does a 401(k) count in the pro-rata calculation?
No. The IRA calculation on Form 8606 counts only IRAs, so money in a 401(k), 403(b), governmental 457(b) or the TSP stays outside it. That is why people planning a backdoor Roth often leave old plan balances where they are, or move pre-tax IRA money into a plan that accepts it. A 401(k) does apply its own pro-rata split to after-tax money inside the plan.
How does a QCD interact with the pro-rata rule?
A qualified charitable distribution is an exception. For IRA owners 70½ or older, the gift is treated as coming first from the taxable part of the IRA rather than pro rata, and it is left off the distributions line of Form 8606. That lets an owner with basis give pre-tax dollars to charity while the after-tax basis stays in place.
What happens to basis that isn’t used?
It isn’t lost. Form 8606 carries unused basis forward each year, and every later withdrawal or conversion recovers another tax-free slice. If you eventually empty all of your traditional IRAs, whatever basis remains comes out tax-free with the final distributions. Keep your Forms 8606, since they are the record that proves the figure.