A common retirement strategy can backfire — here's what you need to know before you convert.
Avoid the Backdoor Roth Backfire
If you don’t understand the IRS’s pro rata rule, you could end up paying more in taxes than you save when making a backdoor Roth contribution. Taxpayers can use a simple formula to understand how much of their contribution is tax-free, and what they can do to avoid diluting the tax advantage of making these contributions.
Do you take it black, or with cream?
Imagine you have a giant thermos of black coffee — that's your pre-tax Traditional IRA. You want to add a splash of pure cream (your after-tax backdoor Roth contribution), planning to pour only the cream into a clean mug (your Roth IRA). There's just one problem: the moment cream touches coffee, it's all one mixture. You can't pour just the cream back out. Every pour will be a blend of both. The IRS pro rata rule works exactly the same way.
How the IRS sees your thermos
Under the pro rata rule, you cannot choose which "type" of money you're converting. Every dollar moved to a Roth IRA must reflect the ratio of pre-tax to after-tax money across all of your Traditional IRA, SEP IRA, and SIMPLE IRA balances. The formula is simple:
Tax-free fraction formula
[After-tax contributions ÷ Total IRA balance] = Tax-free fraction
A concrete example
Say you have $94,000 in a pre-tax Traditional IRA and you add a $6,000 after-tax backdoor contribution, for a total of $100,000. When you convert that $6,000 to Roth, only $360 is tax-free. The other $5,640 becomes taxable income. You wanted a cup of pure cream — instead you got a very coffee-flavored splash.
Why a large pre-tax IRA makes things worse
The larger your pre-tax IRA, the more diluted your cream becomes — and the higher your unexpected tax bill on conversion. At a large enough balance, the backdoor Roth becomes almost entirely taxable, defeating its purpose entirely.
The one workaround
Some people "empty the thermos" first — rolling their pre-tax IRA into a 401(k) if their plan allows it — leaving no coffee to dilute the cream. But if that option isn't available, the backdoor Roth strategy can cost more in taxes than it saves.
Ready to get this right?
Your retirement strategy deserves a second set of eyes. The pro rata rule catches many savers off guard, often at tax time. The advisors at Whitaker-Myers Wealth Managers can help you evaluate whether a backdoor Roth makes sense for your situation, and if so, how to structure it to minimize your tax exposure. Contact an advisor today.
The "milk in your coffee" problem: what the IRS pro rata rule means for your backdoor Roth
September 10, 2026
Ben Allen
Whitaker-Myers Wealth Managers is an SEC-registered investment adviser firm. The information presented is for educational purposes only and intended for a broad audience. The information does not intend to make an offer or solicitation to sell or purchase any specific securities, investments, or investment strategies. Investments involve risk and are not guaranteed. Whitaker-Myers Wealth Managers reasonably believes that this marketing does not include any false or misleading statements or omissions of facts regarding services, investment, or client experience. Whitaker-Myers Wealth Managers has a reasonable belief that the content will not cause an untrue or misleading implication regarding the adviser’s services, investments, or client experiences. Please refer to the firm’s ADV Part 2A for material risks disclosures.
Past performance of specific investment advice should not be relied upon without knowledge of certain circumstances of market events, the nature and timing of the investments, and relevant constraints of the investment. Whitaker-Myers Wealth Managers has presented information in a fair and balanced manner.
Whitaker-Myers Wealth Managers is not giving tax, legal or accounting advice, consult a professional tax or legal representative if needed.
Copyright (c) 2023 Clearnomics, Inc. and Whitaker-Myers Wealth Managers, LTD. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. No representation or warranty, express or implied, is made as to the fairness, accuracy, completeness, or correctness of the information and opinions contained herein. The views and the other information provided are subject to change without notice. All reports posted on or via www.clearnomics.com or any affiliated websites, applications, or services are issued without regard to the specific investment objectives, financial situation, or particular needs of any specific recipient and are not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. Past performance is not necessarily a guide to future results. Company fundamentals and earnings may be mentioned occasionally, but should not be construed as a recommendation to buy, sell, or hold the company's stock. Predictions, forecasts, and estimates for any and all markets should not be construed as recommendations to buy, sell, or hold any security--including mutual funds, futures contracts, and exchange traded funds, or any similar instruments. The text, images, and other materials contained or displayed in this report are proprietary to Clearnomics, Inc. and constitute valuable intellectual property. All unauthorized reproduction or other use of material from Clearnomics, Inc. shall be deemed willful infringement(s) of this copyright and other proprietary and intellectual property rights, including but not limited to, rights of privacy. Clearnomics, Inc. expressly reserves all rights in connection with its intellectual property, including without limitation the right to block the transfer of its products and services and/or to track usage thereof, through electronic tracking technology, and all other lawful means, now known or hereafter devised. Clearnomics, Inc. reserves the right, without further notice, to pursue to the fullest extent allowed by the law any and all criminal and civil remedies for the violation of its rights.
