The Rogues’ Gallery · A trap, personified
Pro-Rata Pete
The real thing: The IRA aggregation / pro-rata rule wrecking a backdoor Roth.
“You can’t pour just the cream out.”
— Max
A note on who Max is. Max is a cartoon owl. He is not a financial advisor, insurance agent, or tax professional, and nothing here is personalized advice. When a question turns personal, he does not answer it — he teaches the general version and points you to a licensed conversation, which is automated and says so before it says anything else.
How Max draws Pro-Rata Pete: A pelican with an enormous blender for a bill.
What it really is: when you convert traditional IRA money to Roth, the pro-rata rule adds up all your traditional, SEP, and SIMPLE IRA balances at year-end and treats the conversion as coming proportionally from pretax and after-tax dollars. You do not get to convert only the after-tax basis. Whatever share of the whole is pretax, that share of your conversion is taxable.
Where he ambushes people: the backdoor Roth. You make a nondeductible contribution — the year's limit is $7,500 for 2026, plus $1,100 at 50 or older — and convert it, expecting a clean move. But an old rollover IRA in the background is pretax money, and Pete blends it in. You cannot pour just the cream out of the coffee once it is stirred.
The way out: empty the traditional-IRA bucket of pretax dollars first. If a current employer plan accepts roll-ins, move the pretax IRA money into it before December 31 — the rule measures your balance on the last day of the year. Then the only thing left to convert is the after-tax contribution you meant to convert.
Figures on this page are for tax year 2026 and were last verified 2026-07-25. Tax and benefit numbers change every year — check the current-year figure before acting on any of them. The 2026 Medicare IRMAA income tiers were not yet confirmed when this was written; where they matter, they are named but not stated as fact.
Where it bites
Let me circle the part that bites.
Desk’s open.
— Max