Silly tIRA/backdoor Roth question

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Abarn
Posts: 14
Joined: Sun Mar 10, 2019 1:39 am

Silly tIRA/backdoor Roth question

Post by Abarn » Sun Mar 31, 2019 2:18 pm

This month I did a backdoor Roth for both my wife and me through Fidelity. I left both our IRA accounts open and after transferring the funds to our Roth accounts and both IRA accounts had $0. I notices yesterday that both IRA accounts now have ~$0.30 in them from interest gained. Was this interest that was gained while the funds were in the IRA accounts during the waiting period prior to transferring to the Roth? And I realize this is a very small amount of money but is it significant and will it have any consequences when I do an IRA contribution and Roth conversion next year? I'm just wondering where this money came from and what to do with it. Thank you!

Lafder
Posts: 4028
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: Silly tIRA/backdoor Roth question

Post by Lafder » Sun Mar 31, 2019 2:34 pm

I was assured that as long as the balance is less than 50 cents it rounds off to zero :)

I heard someone else say to transfer the little bit. I tried that and more cents showed up so I left it after that.

It may be interest.

Lafder

mhalley
Posts: 7784
Joined: Tue Nov 20, 2007 6:02 am

Re: Silly tIRA/backdoor Roth question

Post by mhalley » Sun Mar 31, 2019 2:35 pm

The money is interest from the mm fund while it was in the account. Wci has a post on how pennies affect the bd Roth here.
https://www.whitecoatinvestor.com/penni ... -roth-ira/

Topic Author
Abarn
Posts: 14
Joined: Sun Mar 10, 2019 1:39 am

Re: Silly tIRA/backdoor Roth question

Post by Abarn » Sun Mar 31, 2019 2:44 pm

mhalley wrote:
Sun Mar 31, 2019 2:35 pm
The money is interest from the mm fund while it was in the account. Wci has a post on how pennies affect the bd Roth here.
https://www.whitecoatinvestor.com/penni ... -roth-ira/
That answered my question perfectly, thank you!

retiringwhen
Posts: 1516
Joined: Sat Jul 08, 2017 10:09 am
Location: New Jersey, USA

Re: Silly tIRA/backdoor Roth question

Post by retiringwhen » Sun Mar 31, 2019 4:54 pm

BTW, I experienced exactly the same thing this weekend (opened new tIRA), did a conversion to Roth ASAP and was left with about $0.68 in the tIRA account on the 31st after the balance had shown zero since the conversion (10 days or so earlier).

I immediately initiated a transfer/conversion of $0.68 to the Roth yesterday (it will complete Monday). We’ll see if the leave another penny around after that, unlikely.

The $0.68 was interest earned while in the core position (SPAXX in my case). This is one of the ways that Fidelity pays for you buying those Zero ER funds. They hold the earned interest until the end of the month so they still can make money on these little fractions.

Vanguard on the other hand in this situation (if you do a conversion that is chosen as entire balance) will pay the daily earned interest at the time of the conversion and send it along with the original funds. (Trying to clear out a settlement account at Vanguard can have the same issue if you do share purchases within the account as well. This is an annoying thing overall

This is nickel and dime stuff, but at 0.42% ER, it definitely helps pay the bills.

I am already learning that one has to stay on top of the pennies at Fidelity, otherwise they’ll be left around.

Fully disclosure, I decided to create a new tIRA/Roth pair at Fidelity to test the waters (98% of our investible funds are currently at Vanguard). So far, the big upside is their website while messier and a bit more complicated “looking” has current data that is clearly marked all the time vs. the Vanguard’s site where balances, asset prices, etc. seem to be updated in a random undocumented manner that leave one concerned about trusting what you are reading.

I haven’t really seen an downside outside the fact that their cash management policies will take a few more pennies over time vs. Vanguard with higher ER and their dividend model. Since I don’t plan on holding even a penny longer that necessary in cash, I can mitigate that issue.

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