Backdoor Roth IRA, what to do with the 3 cent interest

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recadna
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Joined: Sun Feb 02, 2014 8:34 pm

Backdoor Roth IRA, what to do with the 3 cent interest

Post by recadna »

I did a backdoor Roth IRA conversion. However, after the transfer, there is now 3 cents interest earn in the traditional IRA account. Do I have to pay interest on the 3 cents? Should I transfer the three cents to the Roth IRA as well? Thanks a lot!
HouseStark
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Re: Backdoor Roth IRA, what to do with the 3 cent interest

Post by HouseStark »

Why would you be paying interest on anything in your IRA? Anyway, yes, you should convert the entire balance of your TIRA to your Roth, including the three cents of earnings. Then you should ignore the three cents in your tax reporting of the conversion, because it's 3 cents and the IRS will ignore it. Therefore, assuming you have no other TIRA balances, following the conversion you be reporting zero taxable income from the conversion.

That's my two cents.
DSInvestor
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Re: Backdoor Roth IRA, what to do with the 3 cent interest

Post by DSInvestor »

recadna wrote:I did a backdoor Roth IRA conversion. However, after the transfer, there is now 3 cents interest earn in the traditional IRA account. Do I have to pay interest on the 3 cents? Should I transfer the three cents to the Roth IRA as well? Thanks a lot!
I suppose you could convert that as well. How did you do your Roth conversion? Did you convert a specific amount say $5,500 or did you convert all shares? If you convert a specific dollar amount, you can strand a little bit of accrued interest in the TIRA. If you convert or exchange all shares, everything including accrued interest/dividends will move to the second fund.

If you have already converted $5,500 in 2014 and convert another $0.03, Vanguard will send you a 1099-R showing conversion of $5,500.03. If your IRA basis is $5,500.00 and you have no other non-Roth IRA account balances on Dec 31, 2014, $5,500 will be non-taxable, $0.03 will be taxable assuming no rounding up or down to the nearest dollar.
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tfb
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Re: Backdoor Roth IRA, what to do with the 3 cent interest

Post by tfb »

recadna wrote:I did a backdoor Roth IRA conversion. However, after the transfer, there is now 3 cents interest earn in the traditional IRA account. Do I have to pay interest on the 3 cents? Should I transfer the three cents to the Roth IRA as well? Thanks a lot!
Save Vanguard and yourself some trouble and leave the 3 cents there in the traditional IRA. Convert it together with your next year's contribution.
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NNate
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Re: Backdoor Roth IRA, what to do with the 3 cent interest

Post by NNate »

In the future, do what HouseStark suggests. If under .50, the IRS rounds down.
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