How to handle Backdoor Roth conversion with mixed traditional IRA contributions (deducted & non-deducted)
I've been putting money into a traditional IRA since 2020 and I'm trying to figure out the tax implications now that I've converted everything to a Roth in 2024. In 2020 and 2022, I was able to deduct my contributions because my income was lower, but in 2021 and 2023 I couldn't deduct them due to income limits. My question is about how to calculate the taxable amount for this Backdoor Roth conversion. I think the total gains on my investments (the value at conversion minus my original contributions) need to be allocated proportionally between my deducted and non-deducted contributions. Then, the taxable amount would be my previously deducted contributions plus the portion of gains allocated to those deducted contributions. For example, if I contributed $6,000 in each year (total $24,000), with $12,000 deducted and $12,000 non-deducted, and the total value grew to $30,000 (so $6,000 in gains), would half of those gains ($3,000) be allocated to my deducted portion? That would make my taxable amount $15,000 ($12,000 deducted contributions + $3,000 allocated gains). Am I thinking about this correctly? This backdoor Roth stuff is making my head spin!
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Peyton Clarke
You're on the right track with your understanding of how the pro-rata rule works for Backdoor Roth conversions with mixed contribution types! When you convert traditional IRA funds that include both deducted and non-deducted contributions, the IRS looks at all your traditional IRA balances combined to determine the taxable portion. Each conversion is treated as having the same proportion of taxable to non-taxable money as your overall IRA balance. In your case, you'd need to look at Form 8606 to calculate the taxable portion. Since approximately 50% of your contributions were deducted, about 50% of the conversion would be taxable (plus the gains allocated to that portion as you correctly noted). One important thing: the calculation is based on your IRA balances as of December 31 of the year you do the conversion. Make sure you're including all traditional IRAs, SEP IRAs, and SIMPLE IRAs in this calculation, not just the one you're converting.
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Vince Eh
•Thanks for explaining! Does this mean if I have a 401k from a previous employer that I haven't rolled over yet, I need to include that in the calculation too? Or is it just traditional IRAs?
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Peyton Clarke
•401(k) accounts are not included in the pro-rata calculation for IRA conversions. The pro-rata rule only applies to traditional IRAs, SEP IRAs, and SIMPLE IRAs. Your 401(k) balance doesn't affect the taxable portion of your Roth conversion. If you have a significant pre-tax IRA balance and want to do more backdoor Roth contributions in the future, you might consider rolling your pre-tax IRA funds into a current employer's 401(k) if that's an option. This can help you avoid the pro-rata rule on future conversions.
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Sophia Gabriel
Just wanted to share my experience with a similar situation. I used https://taxr.ai when dealing with my own backdoor Roth conversion last year. I had a mix of deductible and non-deductible contributions across multiple years, and the calculations were giving me a headache! The tool actually analyzed all my contribution history and investment growth, then calculated the exact taxable amount based on the pro-rata rule. It even helped me understand how to properly fill out Form 8606, which is crucial for tracking your non-deductible basis.
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Tobias Lancaster
•Did it handle your specific scenario with mixed contribution types? I've been pulling my hair out trying to get a straight answer from my tax guy about this exact situation.
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Ezra Beard
•I'm a little skeptical about online tools for something this complicated. How accurate was it compared to what your accountant calculated? And does it generate the actual tax forms or just tell you the numbers?
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Sophia Gabriel
•It handled my mixed contribution types perfectly. The tool specifically asked about which contributions were deducted and which weren't, then calculated the pro-rata amounts accordingly. It was actually more thorough than my previous tax preparer who had oversimplified the calculation. The service generates a detailed worksheet showing exactly how your taxable amount is calculated under the pro-rata rule, with references to the specific IRS regulations. It doesn't complete the entire tax return, but it gives you the exact numbers to put on Form 8606 along with an explanation of which lines they go on.
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Tobias Lancaster
I tried taxr.ai after seeing it mentioned here and wow - wish I'd known about this sooner! I was in almost the identical situation with some deducted and some non-deducted traditional IRA contributions over multiple years. The tool walked me through inputting my contribution history and current values, then did all the pro-rata calculations automatically. It even flagged that I had been tracking my non-deductible basis incorrectly on previous years' Form 8606. Apparently I should have been filing this form even in years when I made non-deductible contributions but didn't do any conversions. Saved me from potentially getting flagged by the IRS for inconsistent reporting of my basis. Definitely recommend for anyone doing backdoor Roth conversions with mixed contribution types!
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Statiia Aarssizan
If anyone's struggling to get help from the IRS about backdoor Roth rules (which are confusing as heck), I found https://claimyr.com to be a lifesaver. After waiting on hold with the IRS for literally hours across multiple days, I used this service and got connected to an actual IRS agent in about 20 minutes. The IRS agent walked me through exactly how to calculate my taxable portion using the pro-rata rule and confirmed I needed to use Form 8606. She even explained how to track my non-deductible basis going forward for any future conversions. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c
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Reginald Blackwell
•How does that even work? The IRS phone lines are impossible to get through. I'm skeptical that any service could actually help with that.
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Aria Khan
•Sounds like a scam to me. The IRS is notoriously understaffed and I've never been able to get through no matter when I call. What's the catch? Do they charge a fortune for this "service"?
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Statiia Aarssizan
•It works by using technology to navigate the IRS phone system for you. Instead of you waiting on hold, their system handles that part, and then they call you when they've reached an agent. It's completely legitimate - they don't pretend to be you or anything sketchy. There is a fee for the service, but considering I had wasted hours trying to get through myself, it was worth every penny. The IRS actually does answer their phones, it's just that their hold times are ridiculous. This service just handles that waiting part for you, and they only charge if they actually connect you.
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Aria Khan
I need to eat some crow here. After my skeptical comment, I decided to try Claimyr because I was desperate for help with my backdoor Roth situation. I couldn't believe it, but I got a call back in about 25 minutes with an actual IRS tax specialist on the line! The agent confirmed exactly what others mentioned about the pro-rata rule and cleared up my confusion about how to report my non-deductible contributions correctly on Form 8606. She even emailed me some resources after our call. I've literally never been able to get through to the IRS before this. Usually I just give up after being on hold for an hour. Consider me converted from skeptic to believer!
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Everett Tutum
One thing nobody's mentioned yet: you need to be really careful with the timing of your backdoor Roth. Some people think there's a waiting period required between making non-deductible traditional contributions and converting to Roth, but that's actually a myth. The "step transaction doctrine" that people worry about has never been enforced by the IRS for backdoor Roths. When I did mine, I converted literally the day after making my non-deductible contribution, which minimized the gains I had to pay taxes on. If you wait too long between contribution and conversion, you'll have more gains to deal with in your pro-rata calculation.
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Sunny Wang
•Is that really true? My financial advisor told me to wait at least 30 days between non-deductible contribution and conversion to avoid the step transaction doctrine. Are you saying that's unnecessary?
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Everett Tutum
•The 30-day waiting period is one of those myths that gets repeated a lot but doesn't have any basis in actual IRS enforcement. The IRS has never challenged a backdoor Roth based on the step transaction doctrine, even when the contribution and conversion happen in quick succession. Congress has essentially blessed the backdoor Roth strategy through their inaction to close this "loophole" despite knowing about it for years. Many tax professionals now recommend doing the conversion as quickly as possible after the contribution to minimize taxable gains. But everyone has different risk tolerance, so some people still prefer to wait just to be extra cautious.
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Hugh Intensity
I messed this up last year and ended up paying way more in taxes than I needed to. I didn't realize that having money in a SEP IRA from a side business would affect my backdoor Roth conversion from my regular traditional IRA. The pro-rata rule looks at ALL your traditional IRA assets, not just the one you're converting from. So instead of just paying taxes on the deducted portion of the IRA I was converting, I had to pay taxes on a much larger percentage because of my SEP IRA balance.
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Effie Alexander
•That's rough! Do you think it would have been better to roll your SEP IRA into a 401k first, then do the backdoor Roth? I've heard that can help avoid the pro-rata issue.
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Freya Larsen
•Yes, rolling your SEP IRA into a 401(k) first would have completely avoided the pro-rata issue! Since 401(k)s aren't included in the pro-rata calculation, you could have then done a clean backdoor Roth conversion with just your non-deductible traditional IRA contributions. This is actually a common strategy called "reverse rollover" - moving your pre-tax IRA money into an employer plan to clear the way for future backdoor Roths. Not all 401(k) plans accept rollovers from IRAs though, so you'd need to check with your plan administrator first. For anyone reading this who has significant pre-tax IRA balances and wants to do backdoor Roths going forward, definitely look into this option before doing your conversions!
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