Question about dividend in backdoor Roth IRA

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Topic Author
Financequest
Posts: 42
Joined: Mon Sep 10, 2018 9:00 pm

Question about dividend in backdoor Roth IRA

Post by Financequest » Thu Jan 10, 2019 11:47 am

2018 was my first backdoor ROTH conversion. In spite of being very careful, the dumb side of me won in the end. I opened a tIRA and tried to convert to ROTH IRA without realizing that I also need to open a ROTH IRA account as well. I thought it should just convert by itself. In short, it took me a week to realize the mistake. When I did convert it finally, I saw that tIRA had some dividend. The dividend showed up in tIRA and then automatically showed up in the Federal money market fund in ROTH IRA account. The amount is $2.02 in ROTH IRA money market fund and nothing in tIRA. My questions are:

1. What is the best way to handle this?

2. What do I do with $2.02?

3. How do I report it on my taxes and what are the tax implications?

4. Should I wait to do 2019 back door ROTH IRA conversion until I fix this issue or I can do it now?

Thank you

mhalley
Posts: 7250
Joined: Tue Nov 20, 2007 6:02 am

Re: Question about dividend in backdoor Roth IRA

Post by mhalley » Thu Jan 10, 2019 12:52 pm

Just invest the 2 bucks in your mf. Report it on the form 8606. You will have to pay taxes on the 2 bucks.
Wci has a post here. Doesnt matter overall when you do the 2019 roth, but time in the market etc.

https://www.whitecoatinvestor.com/penni ... -roth-ira/

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Earl Lemongrab
Posts: 7270
Joined: Tue Jun 10, 2014 1:14 am

Re: Question about dividend in backdoor Roth IRA

Post by Earl Lemongrab » Thu Jan 10, 2019 3:28 pm

There's no issue. You just have a small TIRA. You could convert now or wait until the 2019 contribution. It's not going to affect 2018 much. You need the value of the TIRA on 12/31/2018 to do the pro-rata calculation for 2018 taxes due on the conversion. That will also let you know how much of the remainder is basis and how pretax. The basis will carry over to the 2019 conversion.

You can make as many conversions as you want in a year and for any amounts (as long as you have that much in the account).

Topic Author
Financequest
Posts: 42
Joined: Mon Sep 10, 2018 9:00 pm

Re: Question about dividend in backdoor Roth IRA

Post by Financequest » Thu Jan 10, 2019 9:27 pm

mhalley wrote:
Thu Jan 10, 2019 12:52 pm
Just invest the 2 bucks in your mf. Report it on the form 8606. You will have to pay taxes on the 2 bucks.
Wci has a post here. Doesnt matter overall when you do the 2019 roth, but time in the market etc.

https://www.whitecoatinvestor.com/penni ... -roth-ira/
Thank you. The WCI post is very useful.

Topic Author
Financequest
Posts: 42
Joined: Mon Sep 10, 2018 9:00 pm

Re: Question about dividend in backdoor Roth IRA

Post by Financequest » Thu Jan 10, 2019 9:29 pm

Earl Lemongrab wrote:
Thu Jan 10, 2019 3:28 pm
There's no issue. You just have a small TIRA. You could convert now or wait until the 2019 contribution. It's not going to affect 2018 much. You need the value of the TIRA on 12/31/2018 to do the pro-rata calculation for 2018 taxes due on the conversion. That will also let you know how much of the remainder is basis and how pretax. The basis will carry over to the 2019 conversion.

You can make as many conversions as you want in a year and for any amounts (as long as you have that much in the account).
Thank you for the detailed explanation. Actually, the money is in the money market fund in ROTH IRA as it showed up in tIRA for one day and then in ROTH IRA the next day.

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