How to handle Backdoor Roth conversion with mixed deducted and non-deducted traditional IRA contributions
Title: How to handle Backdoor Roth conversion with mixed deducted and non-deducted traditional IRA contributions 1 I've been putting money into a traditional IRA since 2020 and I'm trying to figure out the tax implications for my backdoor Roth conversion. In 2020 and 2022, I was able to deduct my contributions on my taxes, but in 2021 and 2023 I couldn't take the deduction because my income was too high. I just converted everything to a Roth IRA in 2024. I'm trying to make sure I understand how the taxes work on this conversion. From what I've read, I think the total investment gains (the value when I converted minus my total contributions) need to be proportionally allocated between the deducted and non-deducted amounts. Then I'd owe taxes on both the previously deducted contributions plus the portion of gains that are allocated to those deducted contributions. I worked out some math on this - if I contributed $6,000 each year for 4 years ($24,000 total), with $12,000 deducted and $12,000 non-deducted, and the account grew to $30,000 at conversion, would I figure the taxable amount as: $12,000 (deducted contributions) + ($6,000 gain × 50% allocation to deducted portion) = $15,000 taxable? Does this approach make sense? I want to make sure I'm calculating this correctly for my 2024 taxes. Thanks for any guidance!
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Lourdes Fox
14 You're on the right track with your understanding of the backdoor Roth conversion tax treatment. When you convert a traditional IRA with a mix of deducted and non-deducted contributions, the IRS uses what's called the "pro-rata rule" to determine the taxable portion. Here's how it works: You need to look at ALL your traditional IRA balances as of December 31 of the conversion year (2024). The percentage of your total traditional IRA balance that consists of non-deducted contributions (your "basis") is the tax-free portion of your conversion. The rest is taxable. In your example, you've got $24,000 in total contributions, with $12,000 deducted and $12,000 non-deducted. If the account grew to $30,000, your non-deducted portion ($12,000) represents 40% of the total IRA balance ($30,000). This means 40% of your conversion would be tax-free, and 60% ($18,000) would be taxable. The earnings don't get specifically allocated between deducted and non-deducted portions - the pro-rata rule looks at the overall percentages.
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Lourdes Fox
•3 This is really helpful! So if I understand right, I can't just convert the deducted portion separately from the non-deducted portion to control the tax impact? Also, what about if I have multiple traditional IRAs - do I need to consider all of them in this calculation even if I'm only converting one account?
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Lourdes Fox
•14 You're exactly right - you can't cherry-pick which dollars get converted. The IRS treats all your traditional IRAs as one big pot for purposes of the pro-rata rule. This is sometimes called the "cream in the coffee" principle - once mixed, you can't separate them. For your second question, yes, you must include ALL traditional IRAs you own when calculating the pro-rata rule, even those you aren't converting. This includes SEP and SIMPLE IRAs too. If you have $100,000 across four traditional IRAs and only convert $25,000 from one of them, you still need to consider the entire $100,000 balance when determining the taxable percentage.
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Lourdes Fox
8 After struggling with a similar situation, I found taxr.ai to be super helpful in sorting out my backdoor Roth conversion mess. I had a mix of deducted/non-deducted contributions across multiple years and was totally confused about how the pro-rata rule would affect me. I uploaded my account statements and tax returns to https://taxr.ai and it analyzed everything and showed me exactly how much of my conversion would be taxable. It even highlighted that I had been tracking my non-deducted contributions wrong on Form 8606 for a couple years, which could have caused major problems if I got audited. What I really liked was that it provided a visualization of how the pro-rata rule applied to my specific situation and generated a report I could share with my accountant. Saved me hours of spreadsheet calculations and second-guessing.
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Lourdes Fox
•21 Did you have to provide your actual tax returns or just the IRA contribution info? I'm a bit hesitant to upload my full returns anywhere, but I've got a similar situation with contributions from 2018-2023 with some deducted and some not.
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Lourdes Fox
•5 I'm curious about this too. I've been tracking my non-deducted contributions on a spreadsheet but now I'm worried I might have done it wrong. Does the tool just tell you the taxable amount or does it also help with the actual tax forms you need to file?
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Lourdes Fox
•8 You only need to upload the relevant documents - for me that was my Form 8606 from previous years and my IRA statements. You can redact any personal info you're uncomfortable sharing. I didn't upload my full returns. The tool gives you the taxable amount calculation and also shows you how to properly fill out Form 8606 for the conversion year. It actually pointed out that I had been carrying forward the wrong basis amount on one of my previous 8606 forms, which would have caused problems down the road.
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Lourdes Fox
21 Just wanted to follow up after trying taxr.ai for my backdoor Roth situation. It was actually really helpful! I was making a huge mistake with how I was tracking my non-deducted contributions across multiple accounts. The visualization of the pro-rata calculation made it super clear why I couldn't just convert the after-tax contributions to avoid taxes (something I was planning to try). The report it generated showed me that about 35% of my conversion would be tax-free rather than the 60% I had calculated on my own. Not the news I wanted, but better to know now than get a surprise letter from the IRS later! It also showed me exactly how to properly document everything on Form 8606 for this year's taxes. Definitely worth checking out if you're dealing with mixed contribution types like the original poster.
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Lourdes Fox
17 After spending HOURS trying to get through to the IRS about my backdoor Roth conversion questions and getting nowhere, I discovered Claimyr and it was a game-changer. If you need to actually speak with a human at the IRS about your specific situation, check out https://claimyr.com - they basically wait on hold with the IRS for you and call you back when an agent is on the line. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I had questions about how to handle a conversion with contributions that crossed multiple tax years, and the documentation requirements for Form 8606 that weren't clear from the instructions. Getting personalized guidance directly from the IRS was invaluable since my situation had some complications similar to what you're describing.
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Lourdes Fox
•9 Wait, so you pay someone else to wait on hold? How does that even work? And how do you know they're not just scamming you to get your personal info? The IRS wait times are brutal but this sounds fishy.
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Lourdes Fox
•12 I've heard the IRS won't even answer tax law questions anymore, they just direct you to publications or tax professionals. Did they actually provide specific guidance on your situation or just general information? I'm skeptical they'd give detailed advice on something as complex as backdoor Roth conversions.
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Lourdes Fox
•17 It's not a scam - they use a call system that holds your place in line but doesn't require you to stay on the phone. When an IRS agent answers, their system calls you and connects you directly to that agent. You're the one talking to the IRS, they just handle the hold time. The IRS will still answer procedural questions, just not complex tax planning questions. In my case, I needed clarification on how to properly report previous non-deducted contributions on Form 8606 when doing a conversion, which they were able to help with. You're right they won't give tax planning advice, but they can explain how to correctly document and report transactions you've already done.
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Lourdes Fox
12 I was completely skeptical about Claimyr, but after waiting on hold for nearly 3 hours one day and getting disconnected, I decided to give it a shot. Honestly, it worked exactly as advertised. I submitted my request around 9am, went about my day, and got a call around 2pm connecting me directly to an IRS agent. The agent walked me through exactly how to complete Form 8606 for my backdoor Roth that had mixed contribution types from different years. They confirmed I needed to track non-deducted contributions separately and explained how the pro-rata rule would apply to my conversion. Getting this straight from the IRS gave me peace of mind that I wasn't misinterpreting something I read online. For something as potentially complicated as backdoor Roth conversions with mixed contribution types, getting official guidance was definitely worth it. I never would have managed to wait on hold that long myself.
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Lourdes Fox
7 Be really careful about the timing of your Form 8606 filings! I did a backdoor Roth with mixed contributions similar to your situation, but I hadn't properly filed Form 8606 for the years I made non-deductible contributions. The IRS had no record of my basis, and I ended up having to amend returns for those years to establish my non-deducted contribution history. Make sure you've filed Form 8606 for 2021 and 2023 when your contributions weren't deducted. If you haven't, you may need to go back and file those forms before processing your conversion paperwork for 2024.
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Lourdes Fox
•1 Oh no, I didn't file Form 8606 for those non-deducted years! I thought I only needed to file that when I did the actual conversion. Do you know if there's a penalty for filing those late? And would I need to do full amended returns or just submit the 8606 forms for those years?
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Lourdes Fox
•7 There's a $50 penalty for each year you failed to file Form 8606 when you should have, but the IRS often waives it if you explain the situation. You don't need to file a full amended return - you can just file the missing Form 8606 forms by themselves for each year you made non-deductible contributions. Make sure to file these before you file your 2024 return with the conversion. You'll need to keep copies of all these forms permanently too, as they're your proof of basis. I learned this the hard way when I couldn't prove my non-deducted contributions from years ago and almost paid tax twice on the same money.
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Lourdes Fox
11 Has anyone used the IRS website's "Get Transcript" feature to help with tracking their non-deducted IRA contributions over time? I'm trying to piece together my contribution history before doing a backdoor Roth conversion.
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Lourdes Fox
•19 I've used it, but it won't show your non-deducted contributions unless you filed Form 8606 for those years. If you did file the forms, you can see them on your transcript and they'll show your running basis. Without those forms on file, there's no record of which contributions were non-deducted, so you'll need your own documentation (like account statements and previous tax returns).
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