4 cents left in traditional IRA after Backdoor Roth

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Topic Author
Mark2614
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Joined: Mon Sep 08, 2014 10:53 pm

4 cents left in traditional IRA after Backdoor Roth

Post by Mark2614 » Sat Jan 12, 2019 2:42 pm

I did a backdoor Roth with Chase, but since they took long to convert from traditional to Roth, my $6,000 has already earned 4 cents. The $6,000 will be moved into the Roth by monday, and the 4 cents will be sitting in traditional. Now what?

I would wait until next year and just convert the extra 4 cents into the Roth, but I'm moving my Roth back to Vanguard anyway. So my plan was to close this traditional IRA. Will Chase allow me to close it with the 4 cent balance and just forfeit the 4 cents?

It's a silly situation, but I don't want to trigger some extra "early distribution" form or something that could trigger a red flag.

livesoft
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by livesoft » Sat Jan 12, 2019 2:42 pm

Just convert the 4 cents now.

But you could withdraw it and pay the tax (0 cents on 4 cents because of round-off) and penalty (0 cents on 4 cents). Your tax software probably will hiccup a bit with a 1099-R with 4 cents on it if you make a withdrawal, but if you convert in the same year as the $6000, then the 1099-R will have $6000.04 on it.
Last edited by livesoft on Sat Jan 12, 2019 2:45 pm, edited 1 time in total.
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Topic Author
Mark2614
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by Mark2614 » Sat Jan 12, 2019 2:45 pm

Ok. I guess I could fill out and fax another conversion form for 4 cents. Might look silly. But I don't see any reason it won't allow it. Chase requires me to fill out and fax the form. But it only takes 2 minutes to do.

Topic Author
Mark2614
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by Mark2614 » Sat Jan 12, 2019 2:50 pm

livesoft wrote:
Sat Jan 12, 2019 2:42 pm
Just convert the 4 cents now.

But you could withdraw it and pay the tax (0 cents on 4 cents because of round-off) and penalty (0 cents on 4 cents). Your tax software probably will hiccup a bit with a 1099-R with 4 cents on it if you make a withdrawal, but if you convert in the same year as the $6000, then the 1099-R will have $6000.04 on it.
But for tax purposes you round the cents. So even if the 1099-R has $6000.04 on it, I could still enter it as $6,000 in the tax software right?

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billthecat
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by billthecat » Sat Jan 12, 2019 2:52 pm

Mark2614 wrote:
Sat Jan 12, 2019 2:42 pm
I did a backdoor Roth with Chase, but since they took long to convert from traditional to Roth, my $6,000 has already earned 4 cents. The $6,000 will be moved into the Roth by monday, and the 4 cents will be sitting in traditional. Now what?

I would wait until next year and just convert the extra 4 cents into the Roth, but I'm moving my Roth back to Vanguard anyway. So my plan was to close this traditional IRA. Will Chase allow me to close it with the 4 cent balance and just forfeit the 4 cents?

It's a silly situation, but I don't want to trigger some extra "early distribution" form or something that could trigger a red flag.
When you did the conversion, did you indicate to convert the full balance, or partial (and chose $6,000)? If full, then Chase should automatically convert any trailing interest for you. At least, that's how Schwab does it.

If not, just convert the 4 cents.
Mark2614 wrote:
Sat Jan 12, 2019 2:50 pm
livesoft wrote:
Sat Jan 12, 2019 2:42 pm
Just convert the 4 cents now.

But you could withdraw it and pay the tax (0 cents on 4 cents because of round-off) and penalty (0 cents on 4 cents). Your tax software probably will hiccup a bit with a 1099-R with 4 cents on it if you make a withdrawal, but if you convert in the same year as the $6000, then the 1099-R will have $6000.04 on it.
But for tax purposes you round the cents. So even if the 1099-R has $6000.04 on it, I could still enter it as $6,000 in the tax software right?
Yes but what is the concern? You're not limited to converting $6,000.
We cannot direct the winds but we can adjust our sails.

GuySmiley
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by GuySmiley » Sat Jan 12, 2019 3:10 pm

Don't wait too long, or the 4 cents might earn interest too. :D

I have the same issue. I decided to just leave it be, maybe the timing in future years will improve the situation, or worst case eventually I plan to roll it into Vanguard so will deal with it at that time. I consider doing nothing a good therapy to relax the old OCD for me.

Good Listener
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by Good Listener » Sat Jan 12, 2019 5:06 pm

This is standard for a backdoor roth. Just convert it all.

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ResearchMed
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by ResearchMed » Sat Jan 12, 2019 6:26 pm

I would have thought that when transferring, the later arriving interest would "follow along".

Nope.

At both TIAA and Schwab, the accounts were zero'd out, with the full transfer.
For the large amount transferred out of TIAA, suddenly a few hundred dollars appeared. In the much smaller Schwab account, 21 cents later showed up. And there those amounts still sit. The TIAA was enough to continue to "grow" (so to speak). The 21 cents at Schwab just sits.

RM
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BobDaBlob
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by BobDaBlob » Sat Jan 12, 2019 6:30 pm

Nice...wife and I each have 23 cents in TIRAs at Fidelity...
Too much of everything is just enough...

Alan S.
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by Alan S. » Sat Jan 12, 2019 6:45 pm

Mark2614 wrote:
Sat Jan 12, 2019 2:42 pm
I did a backdoor Roth with Chase, but since they took long to convert from traditional to Roth, my $6,000 has already earned 4 cents. The $6,000 will be moved into the Roth by monday, and the 4 cents will be sitting in traditional. Now what?

I would wait until next year and just convert the extra 4 cents into the Roth, but I'm moving my Roth back to Vanguard anyway. So my plan was to close this traditional IRA. Will Chase allow me to close it with the 4 cent balance and just forfeit the 4 cents?

It's a silly situation, but I don't want to trigger some extra "early distribution" form or something that could trigger a red flag.
Ignore it. It rounds to 0 on all tax forms, so just treat it as 0. It might even be a benefit, as your IRA custodian may not want to close the account for a longer time.
Beside, you are going to do another back door Roth next year, and then when you convert next year, just convert the entire balance then.

livesoft
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by livesoft » Sat Jan 12, 2019 6:51 pm

I would not leave it and cannot believe that people are advising this. But maybe I am one day closer to death than everybody else, so just in case I die I don't want to leave a little turd account around that my heirs have to do something with.

Don't turn a 4 cent issue into a $500 headache.
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Teague
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by Teague » Sat Jan 12, 2019 7:01 pm

1¢ domestic equities
1¢ international equities
2¢ bonds

Pretty risky with so much to international, I know.
Semper Augustus

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telemark
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by telemark » Sun Jan 13, 2019 12:40 am

Penny stocks?

shess
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by shess » Sun Jan 13, 2019 3:42 am

Mark2614 wrote:
Sat Jan 12, 2019 2:42 pm
I did a backdoor Roth with Chase, but since they took long to convert from traditional to Roth, my $6,000 has already earned 4 cents. The $6,000 will be moved into the Roth by monday, and the 4 cents will be sitting in traditional. Now what?
I make it a policy to always follow up with a new transaction for the stupid $.04 or whatever, and to register a complaint. They should allow "Transfer everything" as a setting for something like this, for exactly this reason, and if they don't, well, I can play dumb, too.

[Also, I literally cannot deal with that 4 cents. Sending another form will take me five minutes (or whatever), but the 4 cents will bother me forever.]

Erisachick
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by Erisachick » Tue Feb 05, 2019 7:11 pm

This just happened to me at Fidelity...so frustrating. I opened a new TIRA and made a nondeductible contribution for 2018. It took several days for the amount to settle and I could not convert to a Roth until then. Once settled, I converted the full contribution to a Roth IRA. Everything looked fine and the TIRA had a zero balance for a few days, and then lo and behold $0.33 of interest appeared in the TIRA. I am planning on contributing the max for 2019 shortly into the same TIRA and converting to a Roth again. Question is do I convert the $0.33 now before I make another contribution to the TIRA or do I make my 2019 contribution, wait for the amount to settle and for the additional pennies to be added to the TIRA and convert the full amount at that time. I'm less concerned about the tax implications given the small amounts involved, but more concerned about whether these trailing pennies will cause an accounting/tracking hassle. Any suggestions?

Tedd
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by Tedd » Tue Feb 05, 2019 7:19 pm

Mark2614 wrote:
Sat Jan 12, 2019 2:42 pm
I did a backdoor Roth with Chase, but since they took long to convert from traditional to Roth, my $6,000 has already earned 4 cents.
I have the same situation with Fidelity. $0.04

Tal-
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by Tal- » Tue Feb 05, 2019 7:31 pm

Tedd wrote:
Tue Feb 05, 2019 7:19 pm
Mark2614 wrote:
Sat Jan 12, 2019 2:42 pm
I did a backdoor Roth with Chase, but since they took long to convert from traditional to Roth, my $6,000 has already earned 4 cents.
I have the same situation with Fidelity. $0.04
I'm hesitant saying this because I don't want for it to be taken as any form of advice or advocacy... But, I've had a nominal balance in my traditional IRA at Fidelity after my conversion for the last several years (4?). I don't close the traditional IRA because I don't want to have to re-open one in 12 months when I do my next conversion. So, I keep $1 in the traditional IRA.

Honestly, I do have anxiety about this, and I fear that I'm breaking any number of laws or rules. At the same time, following the spirit of the law, I feel justified.
Debt is to personal finance as a knife is to cooking.

shess
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by shess » Tue Feb 05, 2019 8:33 pm

Tal- wrote:
Tue Feb 05, 2019 7:31 pm
Tedd wrote:
Tue Feb 05, 2019 7:19 pm
Mark2614 wrote:
Sat Jan 12, 2019 2:42 pm
I did a backdoor Roth with Chase, but since they took long to convert from traditional to Roth, my $6,000 has already earned 4 cents.
I have the same situation with Fidelity. $0.04
I'm hesitant saying this because I don't want for it to be taken as any form of advice or advocacy... But, I've had a nominal balance in my traditional IRA at Fidelity after my conversion for the last several years (4?). I don't close the traditional IRA because I don't want to have to re-open one in 12 months when I do my next conversion. So, I keep $1 in the traditional IRA.

Honestly, I do have anxiety about this, and I fear that I'm breaking any number of laws or rules. At the same time, following the spirit of the law, I feel justified.
Technically, you probably have to do pro-rata calculations. Practically, my tax guy always rounds everything to an even dollar amount anyhow, so I think you're almost certainly safe.

stocknoob4111
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by stocknoob4111 » Tue Feb 05, 2019 8:37 pm

I have 0.38 left over, let's hope I have to pay a handsome tax on it next year :D

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FiveK
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Re: 4 cents left in traditional IRA after Backdoor Roth

Post by FiveK » Tue Feb 05, 2019 10:35 pm

As far as line 6 of Form 8606 is concerned, you have $0 left in your tIRA.

Leave it 'til next year.

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