Pro-Rata Rule
When you convert any traditional IRA money to Roth, the taxable portion is calculated across all your IRA balances combined, not just the amount you're converting.
This is the single biggest trap in backdoor Roth execution. Say you have $90,000 in pretax IRAs from a 401(k) rollover and contribute $10,000 nondeductible. Your total IRA balance is $100,000, 10% of which is nondeductible. When you convert any amount, 90% is taxed. The fix is to move pretax IRA balances into your employer 401(k) before doing a backdoor Roth. Check with your plan — most 401(k)s accept rollovers in.
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