If any of your traditional IRA money is after-tax basis, you cannot choose to convert only that part. Every conversion carries taxable and nontaxable money in the same proportion your IRAs hold overall (IRC §408(d)(2)). The standard analogy is cream in coffee: once mixed, every sip is the same ratio. The mechanics live on Form 8606, and they are simple enough to compute by hand before you convert. This guide does one conversion end to end.
The fraction
The nontaxable share of a conversion is:
basis ÷ (December 31 value of all traditional, SEP, and SIMPLE IRAs + all conversions and distributions made during the year)
Three things about the denominator decide most real cases:
- It aggregates all of your traditional, SEP, and SIMPLE IRAs, across every custodian, as one pool. You cannot isolate a “clean” account and convert from it.
- It does not include employer plans (401(k), 403(b), 457(b)), your spouse’s IRAs (the rule runs per taxpayer, even filing jointly), or IRAs you inherited (those keep their own separate basis computation).
- It is measured at December 31 of the conversion year, not on the day you convert. More on why that bites below.
A worked example
A 62-year-old single filer holds $500,000 across two traditional IRAs, of which $50,000 is basis from old nondeductible contributions. She converts $60,000 in June and takes no other IRA distributions. On December 31 her remaining IRAs are worth $440,000. Form 8606 runs:
| Form 8606 step | Value |
|---|---|
| Basis (line 5) | $50,000 |
| December 31 value of all trad/SEP/SIMPLE (line 6) | $440,000 |
| Distributions during the year (line 7) | $0 |
| Conversions during the year (line 8) | $60,000 |
| Denominator: lines 6 + 7 + 8 | $500,000 |
| Nontaxable fraction: 50,000 ÷ 500,000 | 10.0% |
| Nontaxable part of the conversion | $6,000 |
| Taxable part of the conversion | $54,000 |
| Basis carried forward to next year | $44,000 |
She wanted to convert $60,000. What she gets, for tax purposes, is a $54,000 taxable conversion and a $6,000 return of basis, whether she likes the ratio or not. The unused $44,000 of basis stays on Form 8606 and shrinks future conversions’ taxable share the same way.
What it does to the tax bill
Put her other income at $50,000, all ordinary, with the $16,100 standard deduction: taxable income $33,900 before the conversion, federal tax $3,820.
- With the pro rata split, the conversion adds $54,000 of taxable income. Taxable income rises to $87,900 and federal tax to $14,050: the conversion cost $10,230, an effective 17.1% on the $60,000 moved.
- Ignoring basis (the mistake), you would compute $60,000 of added income: taxable income $93,900, tax $15,370, an apparent cost of $11,550.
The difference, $1,320, is exactly the $6,000 nontaxable slice at her 22% marginal rate. People with basis who skip Form 8606 overpay by their basis fraction times their marginal rate, every conversion, and the IRS does not correct overpayments in your favor.
The denominator is a December 31 number
Because line 6 is the year-end value, the taxable fraction of a June conversion depends on market performance through December. Same facts as above, but her remaining $440,000 grows to $480,000 by December 31: the denominator becomes $480,000 + $60,000 = $540,000, the nontaxable fraction drops to 9.26%, and only $5,556 of the conversion is nontaxable instead of $6,000. Growth after the conversion made $444 more of it taxable, retroactively. The split is not knowable with certainty until the year closes, which is one more reason December conversions are easier to plan precisely than January ones.
Cleaning the denominator
The rule has one large, legal escape hatch: the denominator counts IRAs, not employer plans. Pretax IRA money rolled into a 401(k) that accepts roll-ins (a reverse rollover) is out of the December 31 balance, provided the rollover completes by December 31 of the conversion year. Basis cannot be rolled into an employer plan (IRC §408(d)(3)(A)(ii)), so what remains in the IRA afterward is concentrated basis, and a conversion of it is mostly or entirely nontaxable.
This is the standard repair for a blocked backdoor Roth: a high earner with $50,000 of basis and $450,000 of pretax IRA money converts at 90% taxable today. Roll the $450,000 pretax into the employer plan first, and the same conversion of the remaining $50,000 is 100% basis, $0 taxable. Whether that trade is worth it depends on the plan’s fees and menu, which is a plan-quality question, not a tax question.
What the calculator assumes
The calculator treats traditional balances as fully pretax, which is accurate for most of its 55-to-72 audience: basis is rare in accounts built from deductible contributions and pretax 401(k) rollovers. If you carry basis, your true cost per conversion is lower than the calculator shows by your basis fraction times your marginal rate ($1,320 on the example above); the methodology page lists this with the other limitations. Size the conversion with how much to convert this year, then apply your Form 8606 fraction to the result.
Open the calculator
to size the conversion first; the pro rata fraction then scales the taxable share down by your basis, never up.