Pro-Rata Rule
IRS rule that makes Roth conversions proportional across pre-tax and after-tax IRA balances.
The IRS treats all traditional IRAs as one combined account for conversion purposes, which can make part of a conversion taxable if you have pre-tax balances.
For a deeper walkthrough, pair this with the Roth conversion glossary, the backdoor Roth IRA strategy, and the 401(k) to IRA rollover guide. The tax impact often shows up in the traditional vs. Roth math guide.
Example
You have:
- $93,000 in a rollover IRA (all pre-tax)
- $7,000 in a new non-deductible IRA contribution (after-tax)
Total IRA balance: $100,000
Your after-tax percentage: $7,000 ÷ $100,000 = 7%
If you convert $7,000 to Roth:
- Only $490 (7%) is tax-free
- The remaining $6,510 (93%) is taxable income
How to Avoid It
- Roll pre-tax IRA funds into a 401(k) before doing a backdoor Roth.
- Convert everything to Roth in one year (if you can afford the tax bill).
See the full strategy: Backdoor Roth IRA
How sharper.tax Helps
sharper.tax checks for pre-tax IRA balances that could trigger the pro-rata rule and warns you before recommending a backdoor Roth. If the rule applies, we show the tax cost and suggest alternatives like rolling pre-tax funds into a 401(k). Sophisticated tax planning used to require a high-end CPA — we make it available for free.
Sources
- IRS Form 8606: Nondeductible IRAs
- IRS Publication 590-A: Contributions to Individual Retirement Arrangements (IRAs)
The information above is educational and not tax advice.