Total after-tax contributions across ALL Traditional IRAs (Form 8606).
Total year-end value of ALL Traditional, SEP, and SIMPLE IRAs.
The specific amount you are converting to a Roth IRA or distributing.
Tax-Free Percentage (Ratio):0.00%
Taxable Amount (Income):$0.00
Tax-Free Amount (Return of Basis):$0.00
Remaining Basis for Future:$0.00
function calculateProRata() {
// 1. Get input values
var totalBasis = parseFloat(document.getElementById("totalBasis").value);
var totalBalance = parseFloat(document.getElementById("totalBalance").value);
var conversionAmount = parseFloat(document.getElementById("conversionAmount").value);
// 2. Validate inputs
if (isNaN(totalBasis)) totalBasis = 0;
if (isNaN(totalBalance)) totalBalance = 0;
if (isNaN(conversionAmount)) conversionAmount = 0;
// Validation for logic
if (totalBalance totalBalance) {
// In rare cases (market loss), basis can technically exceed balance,
// but for tax purposes, you can't have > 100% tax free.
// We alert the user but cap calculation at 100%.
// Note: This simplifies the loss deduction rules, treating it as 100% tax free.
}
// 3. The Pro Rata Calculation
// Formula: (Total Basis / Total IRA Balance) = Tax Free Ratio
var taxFreeRatio = totalBasis / totalBalance;
// Cap ratio at 1.0 (100%)
if (taxFreeRatio > 1) {
taxFreeRatio = 1;
}
// Calculate specific monetary amounts
var taxFreeAmount = conversionAmount * taxFreeRatio;
var taxableAmount = conversionAmount – taxFreeAmount;
// Calculate remaining basis
// New Basis = Old Basis – Tax Free Part of Distribution
var remainingBasis = totalBasis – taxFreeAmount;
if (remainingBasis < 0) remainingBasis = 0;
// 4. Update the Display
var displaySection = document.getElementById("resultsSection");
displaySection.style.display = "block";
// Format currency helper
function formatMoney(num) {
return "$" + num.toFixed(2).replace(/\d(?=(\d{3})+\.)/g, '$&,');
}
document.getElementById("resultRatio").innerText = (taxFreeRatio * 100).toFixed(3) + "%";
document.getElementById("resultTaxable").innerText = formatMoney(taxableAmount);
document.getElementById("resultTaxFree").innerText = formatMoney(taxFreeAmount);
document.getElementById("resultRemainingBasis").innerText = formatMoney(remainingBasis);
}
Understanding the IRA Pro Rata Rule
The Pro Rata Rule is a critical IRS regulation that affects how retirement withdrawals and Roth conversions are taxed when an investor holds both pre-tax (deductible) and after-tax (non-deductible) funds in their Traditional IRAs. It is most commonly encountered during a "Backdoor Roth IRA" strategy.
The "Cream in the Coffee" Analogy: The IRS views all your Traditional IRAs as a single cup of coffee. Your pre-tax contributions are the coffee, and your after-tax contributions (basis) are the cream. Once mixed, you cannot just spoon out the cream (the tax-free part). Every sip (distribution) you take contains a proportional mix of both coffee and cream.
How the Calculation Works
Contrary to popular belief, you cannot segregate your accounts to avoid taxes. Even if you have one IRA with only non-deductible contributions and another with rollover 401(k) funds, the IRS aggregates them all via IRS Form 8606.
The formula for the non-taxable percentage is:
(Total Non-Deductible Basis) รท (Total Balance of ALL Traditional, SEP, and SIMPLE IRAs)
This percentage is then applied to your distribution to determine how much is tax-free. The remainder is added to your ordinary income for the tax year.
Key Inputs for the Calculator
Total Non-Deductible Basis: This is the cumulative amount of after-tax money you have contributed to your IRAs over the years, minus any previous tax-free distributions. This figure is tracked on your Form 8606.
Total IRA Balance: This is the crucial aggregation step. You must sum the value of all your non-Roth IRAs (Traditional, Rollover, SEP, and SIMPLE) as of December 31st of the tax year in which the conversion happens.
Conversion Amount: The actual dollar amount you moved to a Roth IRA or withdrew.
Why It Matters for Backdoor Roths
High-income earners often use non-deductible IRA contributions to convert to Roth (the Backdoor Roth). If you have zero pre-tax money in any IRA, the conversion is largely tax-free. However, if you have a large "Rollover IRA" from an old job, the Pro Rata rule kicks in, making a significant portion of your conversion taxable.
Strategies to Mitigate the Pro Rata Rule
To avoid a high tax bill on a conversion, investors often look to reduce their "Total IRA Balance" of pre-tax money before December 31st. A common strategy is a "Reverse Rollover," where pre-tax IRA funds are rolled into a current employer's 401(k) plan. Since 401(k)s are not included in the Pro Rata calculation, this isolates the non-deductible basis in the IRA, allowing for a tax-efficient conversion.