Yes, the pro-rata rule applies. There is no alternative unless you can roll the pre-tax portion into a qualified retirement plan like a 401(k), leaving only the after-tax portion in your IRAs to convert. Rollovers from IRAs to qualified retirement plans are permitted to consist only of the pre-tax money from your IRAs.
Your year-end balance used in the calculation is to include only traditional IRA balances, not the Roth IRA balance. In your example where you convert the entire $35,000 leaving a $0 year-end balance in your traditional IRAs, the tax free percentage would be:
$5,500 / ($0 + $35,000) = 15.7%
The calculation that you did would have been correct if after converting $35,000 you were left with $35,000 in traditional IRAs at year end.
In the case where you convert all of your traditional IRA money to Roth, there is actually no need to calculate the percentage that is basis. In that case the nontaxable portion is simply your $5,500 of basis. In any case, TurboTax prepares Form 8606 to calculate the nontaxable and taxable amounts.
