How the aggregation actually works

Under IRC §408(d)(2), the IRS treats every traditional, SEP, and SIMPLE IRA you own as one combined account for the purpose of figuring out how much of a Roth conversion is taxable. The formula is: taxable % of the conversion = your total pre-tax IRA balance ÷ your total IRA balance (as of December 31 of the conversion year).

Example: say you already have $93,000 of pre-tax money sitting in a rollover IRA from an old 401(k). You contribute $7,500 as a nondeductible contribution to a traditional IRA and convert it to Roth the same week. Your total IRA balance is now $100,500, and $93,000 of it (92.5%) is pre-tax. That means 92.5% of your $7,500 conversion — about $6,938 — is taxable, even though the specific dollars you converted were already after-tax.

Which accounts count toward the calculation

Only IRA-titled pre-tax accounts count. Money still sitting inside an employer plan is not part of the IRA aggregation.

The common workaround

If your current employer’s 401(k) plan accepts incoming rollovers, you can roll your pre-tax IRA balances into it before you convert — that zeroes out your pre-tax IRA balance, so a subsequent backdoor Roth conversion isn’t diluted by the pro-rata rule. This only works if the plan actually accepts IRA-to-401(k) rollovers, so confirm with the plan administrator first.

Frequently Asked Questions

Does converting in January versus December matter?

The balance used in the calculation is your total IRA balance on December 31 of the conversion year — not the balance on the day you converted. Pre-tax IRA money you roll out before year-end (for example, into a 401(k)) won’t count against that year’s pro-rata math even if your conversion happened earlier in the year.

What if I don’t file Form 8606?

You lose the IRS’s record of your after-tax basis, which risks being taxed a second time on the same dollars when they’re eventually withdrawn — plus the IRS can assess a penalty for failing to report a nondeductible contribution correctly.

Does the pro-rata rule apply separately to each spouse?

Yes. IRA balances are tracked per individual, not combined for married couples, so each spouse’s pro-rata calculation only looks at that spouse’s own IRA balances.