function calculateProRata() {
var basis = parseFloat(document.getElementById('totalBasis').value);
var totalValue = parseFloat(document.getElementById('totalIraValue').value);
var convert = parseFloat(document.getElementById('conversionAmount').value);
var resultDiv = document.getElementById('pr-result');
if (isNaN(basis) || isNaN(totalValue) || isNaN(convert) || totalValue totalValue) {
alert("Total basis cannot exceed the total IRA value.");
return;
}
// Pro Rata Ratio = Total Basis / Total Value of all IRAs
var ratio = basis / totalValue;
// Non-taxable portion of the conversion
var nonTaxablePortion = convert * ratio;
// Taxable portion of the conversion
var taxablePortion = convert – nonTaxablePortion;
// Remaining basis
var remainingBasis = basis – nonTaxablePortion;
// Update UI
document.getElementById('resRatio').innerText = (ratio * 100).toFixed(2) + "%";
document.getElementById('resNonTaxable').innerText = "$" + nonTaxablePortion.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resTaxable').innerText = "$" + taxablePortion.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
document.getElementById('resRemainingBasis').innerText = "$" + remainingBasis.toLocaleString(undefined, {minimumFractionDigits: 2, maximumFractionDigits: 2});
resultDiv.style.display = 'block';
}
Understanding the Roth IRA Pro Rata Rule
The Pro Rata Rule is an IRS regulation that determines the taxation of distributions or conversions from IRAs that contain both pre-tax and after-tax (non-deductible) contributions. Many investors encounter this rule when attempting a "Backdoor Roth IRA" conversion while holding other existing Traditional IRA balances.
How the Pro Rata Rule Works
The IRS views all of your Traditional, SEP, and SIMPLE IRAs as one single combined entity for tax purposes. You cannot choose to only convert the "after-tax" portion of your account. Instead, the IRS requires you to convert a proportional amount of your pre-tax and after-tax funds.
The calculation follows this basic formula:
(Total After-Tax Basis) / (Total Value of all non-Roth IRAs) = Non-Taxable Percentage
Critical Factors for Calculation
Total Basis: This is the sum of all non-deductible contributions you have made over the years that haven't been distributed yet. This is typically tracked on IRS Form 8606.
Aggregate Value: You must include the fair market value of ALL non-Roth IRAs (Traditional, SEP, SIMPLE) as of December 31st of the year the conversion occurs.
The "Cream in the Coffee" Analogy: Think of pre-tax money as coffee and after-tax money as cream. Once you mix them in an IRA, you cannot pour out a cup of just cream; every sip (or conversion) will contain a proportional mix of both.
Example Scenario
Imagine you have $10,000 in a Traditional IRA that was a non-deductible contribution (your basis). However, you also have a rollover IRA from a previous employer worth $90,000 consisting of pre-tax money.
Your total IRA balance is $100,000. Your non-taxable ratio is 10% ($10,000 / $100,000).
If you decide to convert $10,000 to a Roth IRA, only 10% ($1,000) is tax-free. The remaining $9,000 will be added to your taxable income for the year.
How to Avoid the Pro Rata Rule
For those looking to perform a clean Backdoor Roth IRA conversion without triggering the pro rata rule, there are a few common strategies:
401(k) Rollovers: If your employer's 401(k) plan allows it, you may be able to roll your pre-tax IRA balances into the 401(k). Since 401(k) plans are not included in the pro rata calculation, this "clears the deck" for tax-free Roth conversions.
Zeroing Out IRAs: Ensure that by December 31st of the conversion year, your total balance in all Traditional, SEP, and SIMPLE IRAs is zero (excluding the amount converted).
Disclaimer: This calculator is for educational purposes only. Tax laws are subject to change. Always consult with a qualified tax professional or CPA before making significant financial decisions.