Hong Life CalculatorsUnderstanding the backdoor Roth IRA pro-rata tax calculator — concept and principle
A backdoor Roth is a two-step move used by people whose income is too high to contribute to a Roth IRA directly: you make a non-deductible contribution to a traditional IRA, then convert it to a Roth IRA. Whether that conversion is tax-free depends on the pro-rata rule. This calculator estimates the taxable part and the extra federal tax at your marginal rate.
How it is calculated
The IRS treats all your traditional, SEP and SIMPLE IRAs as one pot. The tax-free share of any conversion is your after-tax basis divided by the total IRA money:
- Tax-free share = basis ÷ (other pre-tax IRA balances on 31 December + amount converted), capped at 100%
- Tax-free amount = amount converted × tax-free share
- Taxable amount = amount converted − tax-free amount
- Estimated tax = taxable amount × marginal tax rate
Basis is your non-deductible contributions reported on Form 8606. Pre-tax balances are measured on 31 December of the conversion year, not on the conversion day.
The principle
Money in a traditional IRA is a mix of dollars already taxed (your basis) and dollars never taxed (deductible contributions, rollovers and all earnings). You cannot convert only the after-tax dollars: every dollar that leaves is a proportional slice of the whole mix. So an old rollover IRA can make a backdoor Roth mostly taxable. A 401(k) is not part of the pot, so rolling pre-tax IRA money into one before year-end is the usual fix.
Worked example
- Basis = $7,500, other pre-tax IRA balances = $0, amount converted = $7,500, marginal rate = 24%.
- Tax-free share = 7,500 ÷ (0 + 7,500) = 100%.
- Tax-free amount = $7,500; taxable amount = $0.
- Tax on conversion = $0 × 24% = $0, and 0% of the conversion is taxable.
Now suppose you also had $67,500 in an old rollover IRA. The share becomes 7,500 ÷ 75,000 = 10%, so $6,750 of the conversion is taxable and the extra tax is about $1,620 at 24%.
How to read the result
A tax-free share of 100% means the backdoor works as intended. Anything lower means part of the conversion is ordinary income in that tax year. Unused basis is not lost; it carries forward on Form 8606.
Common mistakes
- Forgetting SEP and SIMPLE IRAs, which count in the pro-rata pot.
- Not filing Form 8606, which can mean paying tax twice.
- Ignoring earnings that accrue between contributing and converting; they are taxable.
Frequently asked questions
Is a backdoor Roth legal?
Yes. Since 2010 Roth conversions have no income limit, and non-deductible IRA contributions are allowed at any income.
Does my spouse's IRA affect my pro-rata calculation?
No. The aggregation applies per person, so each spouse's own IRAs are counted separately.
Can I withdraw converted money right away?
Each conversion has its own five-year period; withdrawing converted amounts before age 59½ and within five years can trigger a 10% penalty on the part that was taxable at conversion.
Sources: IRS, Instructions for Form 8606 (Nondeductible IRAs) · Internal Revenue Code §408(d)(2) · IRS Publication 590-A and 590-B