I have after-tax money in my IRA — does that change things?

When a traditional IRA holds both pre-tax money and after-tax basis (nondeductible contributions), a conversion cannot cherry-pick the after-tax dollars. Every conversion is deemed to consist of pre-tax and after-tax money in the same proportion as the owner's IRAs overall. Only the pre-tax share is taxable.

Aggregation across accounts

The proportion is computed across all of the owner's traditional, SEP, and SIMPLE IRAs combined, as of December 31 of the conversion year — not just the account converted from. Keeping basis in a separate IRA does not avoid the rule. (A spouse's IRAs are not aggregated; the rule applies per person.)

The computation

Taxable fraction = 1 − (total after-tax basis ÷ total year-end value of all traditional/SEP/SIMPLE IRAs + amounts converted during the year).

Example: an owner has $93,000 pre-tax across IRAs and makes a $7,000 nondeductible contribution (total $100,000, basis $7,000). Converting $7,000 does not convert "the after-tax $7,000": the conversion is 93% taxable — $6,510 taxable, $490 of basis applied. Basis tracking is reported on IRS Form 8606 each year a nondeductible contribution or conversion occurs.

Why it matters for the backdoor Roth

The backdoor Roth (nondeductible contribution, then conversion) is tax-free only when the owner's other traditional/SEP/SIMPLE IRA balances are zero (or hold only basis). Existing pre-tax IRA money makes most of the conversion taxable via the pro-rata math. A common workaround is rolling pre-tax IRA balances into a workplace plan such as a 401(k) — workplace plan balances are not counted in the pro-rata aggregation — leaving only basis in the IRA before converting.