Guide · Form 8606
The pro-rata rule for a mixed-basis IRA (Form 8606)
If you've ever made a non-deductible contribution to a traditional IRA, you can't just convert "the after-tax part." The pro-rata rule blends every dollar of pre-tax and after-tax money across all your traditional IRAs — here's how it actually works.
What counts as basis
Every non-deductible contribution you've ever made to a traditional, SEP, or SIMPLE IRA builds up cumulative after-tax basis, tracked on IRS Form 8606. That basis isn't tied to a specific account or a specific dollar — it's a running total across every traditional-type IRA you own combined.
Why you can't cherry-pick
A common misconception is that you can convert just the after-tax portion, tax-free, by moving it out of a separate account. The pro-rata rule forbids that: every conversion (and every distribution) is treated as coming proportionally from your pre-tax and after-tax balances across all your combined traditional IRA money, no matter which specific account the dollars physically leave from. The ratio is basis divided by your total traditional IRA balance, calculated as of year-end across every account.
A worked example
Say you have $10,000 of after-tax basis and a combined traditional IRA balance of $100,000 across two accounts — one holding only the basis, one holding only pre-tax money. Your basis ratio is 10%. Converting $20,000, even if you convert it entirely out of the account that holds your basis, is still treated as 10% tax-free ($2,000) and 90% taxable ($18,000) — exactly the same as if you'd converted from the pre-tax-only account instead. There is no way to isolate the after-tax dollars by choosing which account to draw from.
Why the balance you use matters
The IRA balance used for the ratio is the balance before this year's distributions and conversion — not after — matching Form 8606's year-end value with this year's distributions and conversions added back. Getting the timing or the balance wrong is one of the most common sources of an over- or under-stated conversion tax bill, especially in a year that also includes an RMD or another distribution alongside the conversion.
How Harbor handles it
Harbor tracks your entered IRA basis and computes the pro-rata taxable share on every modeled conversion using the correct pre-distribution balance, exactly as Form 8606 requires. If you enter a basis of zero, the model correctly treats the whole conversion as taxable — a safe failure mode if you're unsure of your actual basis, but worth double-checking against your own Form 8606 history before relying on the number, since understating your basis overstates your tax.
Model your own basis correctly
Enter your tracked IRA basis and Harbor computes the correct taxable share on every conversion.
Start planning — it's free →Common questions
What does the pro-rata rule mean for a mixed-basis IRA?
If your IRA holds both pre-tax and after-tax (basis) money, each conversion is taxed proportionally under the Form 8606 pro-rata rule. Harbor tracks basis so the taxable share is computed correctly.
Can I avoid the pro-rata rule by converting from a specific account?
No — the rule applies across all your combined traditional, SEP, and SIMPLE IRA balances, regardless of which account the conversion is physically drawn from.