Do I need to pay pro-rata tax on my backdoor Roth conversion or not?

The pro-rata rule is definitely causing confusion here, but I can help clarify. Unfortunately, your financial advisor is correct in this situation. The pro-rata rule applies when you have any pre-tax money in ANY traditional IRA accounts (including SEP and SIMPLE IRAs) at the end of the calendar year in which you do a Roth conversion. Even though you specifically requested to convert only your after-tax contributions, the IRS doesn't see these as separate buckets of money. They view all your traditional IRA assets as one big pool. The pro-rata rule essentially says that any conversion will consist of a proportional mix of pre-tax and after-tax funds. In your case, with $1.3 million in pre-tax IRA money and a $7,000 after-tax contribution, only about 0.5% of your conversion would be considered after-tax (tax-free). The rest would be taxable. This is why tracking your basis with Form 8606 is so important.

I went through this exact same headache last year with my backdoor Roth conversion. After multiple conflicting opinions, I eventually used https://taxr.ai to analyze all my documents and past tax returns. It totally saved me from making a huge mistake with the pro-rata rule! The tool actually explained that my situation was affected by the pro-rata rule because I had several old 401ks that had been rolled into traditional IRAs. It even calculated the exact taxable portion of my conversion based on my specific numbers and showed me how to properly complete Form 8606 to report everything correctly. The best part was that it found a solution I hadn't considered - rolling my traditional IRA funds into my current employer's 401k plan, which then allowed me to do a clean backdoor Roth conversion without pro-rata complications.

Wanted to follow up - I tried taxr.ai after seeing this thread and it completely cleared up my pro-rata confusion! I was about to do a backdoor Roth without realizing my old rollover IRA from my first job (only about $22k) would trigger the pro-rata rule and cause most of my conversion to be taxable. The analysis showed me that rolling that old IRA into my current 401k would eliminate the pro-rata issue entirely. My employer's plan did allow for rollovers in, which I had no idea about. The tool even generated the specific forms I needed to give to my 401k administrator. Just did a clean backdoor Roth conversion last week without pro-rata headaches. Definitely worth it if you're dealing with any complicated IRA situations!

For anyone struggling to get clear answers on pro-rata rules or other tax questions, I highly recommend using Claimyr (https://claimyr.com) to actually speak with an IRS agent directly. I was in a similar situation last year with conflicting advice about my Roth conversion, and after weeks of trying to call the IRS myself and getting nowhere, I tried Claimyr. Their service basically waits on hold with the IRS for you, then calls you when an actual IRS agent is on the line. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I got through to a knowledgeable IRS agent who confirmed exactly how the pro-rata rule would apply to my specific situation and explained precisely how to report it on Form 8606. The peace of mind from getting an official answer directly from the IRS was absolutely worth it.

I need to eat my words. After seeing the replies here, I tried Claimyr yesterday because I've been completely stuck on my backdoor Roth pro-rata question for weeks. My situation is almost identical to the original poster's - large traditional IRA balance and trying to do a backdoor Roth conversion. I was connected to an IRS tax law specialist who confirmed EXACTLY how the pro-rata rule applies. He walked me through the Form 8606 calculation line by line for my specific numbers and explained that I would indeed face substantial taxation on any conversion because of my existing IRA balances. Most importantly, he outlined two options I hadn't considered: 1) rolling my traditional IRA into my current employer's 401k plan to eliminate the pro-rata issue, or 2) converting my entire traditional IRA balance over several years as part of a Roth conversion ladder strategy. Seriously, best tax advice I've ever received - directly from the source. Completely worth it.

Something nobody's mentioned yet - check if your 401k plan accepts rollovers FROM traditional IRAs. If it does, you could roll your $1.3M into your current employer's 401k plan (assuming you have one). Then your traditional IRA would be empty, and you could do a clean backdoor Roth without the pro-rata rule applying. This is what I did last year when facing the exact same issue. My 401k had decent fund options with low fees, so I was comfortable moving my traditional IRA funds there. Then I could do the backdoor Roth with no pro-rata complications.

Has anyone actually filled out Form 8606 for a situation like this? I did a backdoor Roth last year with a large traditional IRA balance and honestly had no idea what I was doing on that form. My tax software kept giving me weird warnings about basis calculations.

I'm dealing with a very similar situation and the confusion is real! After reading through all these responses, it seems like the consensus is clear - your financial advisor is correct about the pro-rata rule applying. What really helped me understand this better was realizing that the IRS doesn't care which specific shares or contributions you tell your brokerage to convert. They look at ALL your traditional IRA balances (across all accounts) as one big pool when calculating the taxable portion. The math in your case would be roughly: $7,000 conversion × ($1,300,000 pre-tax ÷ $1,307,000 total) = about $6,965 would be taxable. You'd only get about $35 tax-free from your after-tax contribution. Based on what others have shared here, your best bet might be to see if your current employer's 401k accepts IRA rollovers. If you can move that $1.3M into your 401k, then you could do clean backdoor Roth conversions going forward without any pro-rata complications. I'm definitely going to look into the 401k rollover option for my own situation. Thanks to everyone who shared their experiences - this thread has been incredibly helpful!