Back door Roth conversion help

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harmoniousmonk
Posts: 43
Joined: Sat Jun 09, 2018 1:35 pm

Back door Roth conversion help

Post by harmoniousmonk » Wed Aug 01, 2018 12:19 pm

So I was successful in rolling a tIRA into my 401k plan to prevent pro rata issues. I opened a new traditional yesterday and contributed 5500$. With yesterday being the end of the month, I got a 28 cent dividend and now my balance on my tIRA is 5500.28$.

Do I convert the tIRA using the 5500$ max now? What happens to the 28 cents? Do I owe any taxes?

Thanks.
In efficient markets, mediocrity is the norm. | Never confuse genius for luck and a bull market.

stocknoob4111
Posts: 326
Joined: Sun Jan 07, 2018 12:52 pm

Re: Back door Roth conversion help

Post by stocknoob4111 » Wed Aug 01, 2018 12:35 pm

you will owe taxes on the 28 cents, that is considered a short term gain/interest, although I do not know if there is some kind of lower limit that excludes very small amounts.

uclalee
Posts: 75
Joined: Tue Apr 12, 2016 3:07 pm

Re: Back door Roth conversion help

Post by uclalee » Wed Aug 01, 2018 1:39 pm

You convert the entire amount $5500.28 to roth ira. Your taxes are filed in whole numbers, so 28 cents will round down to zero. So you wont owe any taxes in the end.

retiredjg
Posts: 34161
Joined: Thu Jan 10, 2008 12:56 pm

Re: Back door Roth conversion help

Post by retiredjg » Wed Aug 01, 2018 1:54 pm

Convert it all. You will not owe any tax because the 28 cents rounds down.

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Epsilon Delta
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Joined: Thu Apr 28, 2011 7:00 pm

Re: Back door Roth conversion help

Post by Epsilon Delta » Wed Aug 01, 2018 2:33 pm

While the above are correct IMHO stressing the rounding rules is overly technical and obscures the big picture.

Rounding is allowed because the amounts are small and make no real difference. If the gains were $0.51 or $9.28 it would not round down but it would still be small and make no real difference. The advice would be the same -- convert it all, then you (or your tax software) follow the rules using the actual amount converted and find that a small differences in income usually make little or no difference in your taxes.

harmoniousmonk
Posts: 43
Joined: Sat Jun 09, 2018 1:35 pm

Re: Back door Roth conversion help

Post by harmoniousmonk » Wed Aug 01, 2018 3:07 pm

Thanks guys, I will convert it all tomorrow.

Anyone know if Vanguard will keep open a tIRA with a 0$ balance?
In efficient markets, mediocrity is the norm. | Never confuse genius for luck and a bull market.

DSInvestor
Posts: 10890
Joined: Sat Oct 04, 2008 11:42 am

Re: Back door Roth conversion help

Post by DSInvestor » Wed Aug 01, 2018 3:11 pm

harmoniousmonk wrote:
Wed Aug 01, 2018 3:07 pm

Anyone know if Vanguard will keep open a tIRA with a 0$ balance?
Yes, they will.
Wiki

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