Pro-Rata Rule.
In plain English
The pro-rata rule decides how much tax you owe on an IRA conversion or withdrawal. You cannot cherry-pick only your after-tax dollars to convert. The IRS looks at all your traditional, SEP, and SIMPLE IRAs combined, figures out what share is after-tax versus pre-tax, and applies that same share to whatever you convert. So if most of your IRA money is pre-tax, most of your conversion is taxable, even if you meant to convert only your after-tax contribution. This is the rule that can quietly wreck a backdoor Roth.
01Why it matters
It can turn a supposedly tax-free backdoor Roth into a partly taxable event, and people often discover the bill only after they file.
02The math, step by step
You have $6,000 of after-tax money and $54,000 of pre-tax money across your IRAs, so 10% of the $60,000 total is after-tax. If you convert $6,000 hoping it is tax-free, the rule says only 10% ($600) is treated as after-tax. The other $5,400 is taxable income that year.
03What this is NOT
It is not your choice which dollars convert. You cannot isolate the after-tax money. The rule forces a proportional mix of all your pre-tax and after-tax IRA balances, measured across every traditional IRA you own.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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