AI Summary

A $300,000 pre‑tax rollover IRA made almost the entire $7,500 backdoor Roth conversion taxable. The IRS pro‑rata rule, codified in Section 408(d)(2), treats all traditional, SEP, and SIMPLE IRAs as a single account on December 31. Because the rollover occurred in November, it was counted in the year’s aggregate IRA balance, so the January conversion was largely taxed. The rule forces taxpayers to consider the timing of rollovers before converting to a Roth.

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