Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

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Topic Author
Prettyfrtnt
Posts: 136
Joined: Fri Aug 23, 2019 6:28 pm

Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by Prettyfrtnt » Wed Nov 06, 2019 9:35 pm

So I did the backdoor Roth. One day I added $6000 into vanguard traditional IRA. Then the next day I converted $6000 to Roth IRA. Unfortunately it left like $2 in traditional IRA... is this a problem from the standpoint of the prorata rule? How can I get rid of the $2 if I need to?

Don’t have any other seps or other Ira. Maybe on Jan one I can add $5998 and then convert for 2020?

Thanks all for all the help!!

HomeStretch
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Joined: Thu Dec 27, 2018 3:06 pm

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by HomeStretch » Wed Nov 06, 2019 9:44 pm

Convert the $2 earnings in the tIRA to your Roth IRA now. You will pay tax on it as the earnings are pre-tax. It is not a contribution so no need to reduce your 2020 contribution by $2.

Topic Author
Prettyfrtnt
Posts: 136
Joined: Fri Aug 23, 2019 6:28 pm

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by Prettyfrtnt » Wed Nov 06, 2019 9:54 pm

This is a backdoor Roth so the IRA was made w taxed dollars.

Topic Author
Prettyfrtnt
Posts: 136
Joined: Fri Aug 23, 2019 6:28 pm

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by Prettyfrtnt » Wed Nov 06, 2019 9:55 pm

Prettyfrtnt wrote:
Wed Nov 06, 2019 9:54 pm
This is a backdoor Roth so the IRA was made w taxed dollars.
I don’t think I can convert more this year as I converted $6000.

Rainmaker41
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Joined: Tue Apr 26, 2016 11:34 am

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by Rainmaker41 » Wed Nov 06, 2019 9:59 pm

Conversions do not count toward contribution limits.
Last edited by Rainmaker41 on Wed Nov 06, 2019 9:59 pm, edited 1 time in total.

cykj
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Joined: Fri Feb 17, 2017 8:53 pm

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by cykj » Wed Nov 06, 2019 9:59 pm

Prettyfrtnt wrote:
Wed Nov 06, 2019 9:55 pm
Prettyfrtnt wrote:
Wed Nov 06, 2019 9:54 pm
This is a backdoor Roth so the IRA was made w taxed dollars.
I don’t think I can convert more this year as I converted $6000.
You can convert any amount you want. It's your contributions that's limited to 6K

stilllurking
Posts: 67
Joined: Mon Jun 16, 2014 10:44 am

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by stilllurking » Wed Nov 06, 2019 10:13 pm

cykj wrote:
Wed Nov 06, 2019 9:59 pm
Prettyfrtnt wrote:
Wed Nov 06, 2019 9:55 pm
Prettyfrtnt wrote:
Wed Nov 06, 2019 9:54 pm
This is a backdoor Roth so the IRA was made w taxed dollars.
I don’t think I can convert more this year as I converted $6000.
You can convert any amount you want. It's your contributions that's limited to 6K
So I could put in $6k convert it to my Roth and then repeat again and again in the same calendar year? Or is my first $6k a contribution?

HomeStretch
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Joined: Thu Dec 27, 2018 3:06 pm

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by HomeStretch » Wed Nov 06, 2019 10:17 pm

Prettyfrtnt wrote:
Wed Nov 06, 2019 9:54 pm
This is a backdoor Roth so the IRA was made w taxed dollars.
Yes but the earnings are taxable. The sooner you convert the $2 to your Roth IRA, the sooner it begins growing tax-free. :D

cykj
Posts: 10
Joined: Fri Feb 17, 2017 8:53 pm

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by cykj » Thu Nov 07, 2019 7:19 am

stilllurking wrote:
Wed Nov 06, 2019 10:13 pm
cykj wrote:
Wed Nov 06, 2019 9:59 pm
Prettyfrtnt wrote:
Wed Nov 06, 2019 9:55 pm
Prettyfrtnt wrote:
Wed Nov 06, 2019 9:54 pm
This is a backdoor Roth so the IRA was made w taxed dollars.
I don’t think I can convert more this year as I converted $6000.
You can convert any amount you want. It's your contributions that's limited to 6K
So I could put in $6k convert it to my Roth and then repeat again and again in the same calendar year? Or is my first $6k a contribution?
Conversions do not negate contributions, if that's what you're asking.
For example, if your TIRA has 10K in it, and you add another 6K, you can then convert all 16K to Roth, but you will not be able to contribute any more in either T/Roth-IRAs for that year.

stilllurking
Posts: 67
Joined: Mon Jun 16, 2014 10:44 am

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by stilllurking » Thu Nov 07, 2019 7:33 am

cykj wrote:
Thu Nov 07, 2019 7:19 am
stilllurking wrote:
Wed Nov 06, 2019 10:13 pm
cykj wrote:
Wed Nov 06, 2019 9:59 pm
Prettyfrtnt wrote:
Wed Nov 06, 2019 9:55 pm
Prettyfrtnt wrote:
Wed Nov 06, 2019 9:54 pm
This is a backdoor Roth so the IRA was made w taxed dollars.
I don’t think I can convert more this year as I converted $6000.
You can convert any amount you want. It's your contributions that's limited to 6K
So I could put in $6k convert it to my Roth and then repeat again and again in the same calendar year? Or is my first $6k a contribution?
Conversions do not negate contributions, if that's what you're asking.
For example, if your TIRA has 10K in it, and you add another 6K, you can then convert all 16K to Roth, but you will not be able to contribute any more in either T/Roth-IRAs for that year.
I thought this was for backdoor Roth. So my tIRA has $0. Then I contribute $6k to my tIRA and then convert it to my Roth IRA. Is that all that I can convert? Or can I put more $6k amounts into my tIRA and do this again?

Silk McCue
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Joined: Thu Feb 25, 2016 7:11 pm

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by Silk McCue » Thu Nov 07, 2019 7:50 am

stilllurking wrote:
Thu Nov 07, 2019 7:33 am

I thought this was for backdoor Roth. So my tIRA has $0. Then I contribute $6k to my tIRA and then convert it to my Roth IRA. Is that all that I can convert? Or can I put more $6k amounts into my tIRA and do this again?
You are confusing the discussion. You can only CONTRIBUTE $6k (unless 50 and older) to Traditional or Roth for each calendar year. PERIOD. If you had say $50k in another IRA you could convert all of that and perform a back door Roth at $6k. You can't then put $6k more into the empty IRA that year and perform another back door Roth as you have already consumed your contribution limit for the year. You must separate Contribution Limits from Conversions in your thinking. There is no magic way to shove limitless amounts into your Roth.

cykj response stated the same thing, using fewer words than me.

Cheers

stilllurking
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Joined: Mon Jun 16, 2014 10:44 am

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by stilllurking » Thu Nov 07, 2019 8:05 am

Silk McCue wrote:
Thu Nov 07, 2019 7:50 am
stilllurking wrote:
Thu Nov 07, 2019 7:33 am

I thought this was for backdoor Roth. So my tIRA has $0. Then I contribute $6k to my tIRA and then convert it to my Roth IRA. Is that all that I can convert? Or can I put more $6k amounts into my tIRA and do this again?
You are confusing the discussion. You can only CONTRIBUTE $6k (unless 50 and older) to Traditional or Roth for each calendar year. PERIOD. If you had say $50k in another IRA you could convert all of that and perform a back door Roth at $6k. You can't then put $6k more into the empty IRA that year and perform another back door Roth as you have already consumed your contribution limit for the year. You must separate Contribution Limits from Conversions in your thinking. There is no magic way to shove limitless amounts into your Roth.

cykj response stated the same thing, using fewer words than me.

Cheers
Crystal clear now. Thanks!

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neurosphere
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Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by neurosphere » Thu Nov 07, 2019 8:35 am

I'm curious, and pretty sure I know the answer but..

What if one has multiple contributions and conversion events in the same calendar year at the same custodian. For example, they contribute $1000 at a time 6 times, and convert each time prior to the next contribution.

I assume they'll just provide one 1099 to report this (and one 5498 of course), such that filling out 8606 and associated amounts would not be any more difficult than if one had one contribution and one conversion?

Because the OP can just leave those $2 in the traditional IRA and mix it with next years $6000 contribution. Not worth worrying about. Even if the $2 somehow magically grew to $20, the taxes on the gains are trivial. Then again, it's trivial to click the "convert to a Roth" button and get rid of the $2. :)

KingRiggs
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Location: Indiana

Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by KingRiggs » Thu Nov 07, 2019 8:40 am

In the future, when doing your backdoor Roth conversion (conversion from tIRA to Roth IRA), see if you can specify to convert the "total balance" instead of a set dollar amount. This avoids the little crumbs left over in your tIRA after the conversion. It's also easier if you keep the tIRA funds on something very low-yielding, such as a money market fund in order to minimize gains since it will only be there a short time.
Advice = noun | Advise = verb | | Roth, not ROTH

FactualFran
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Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by FactualFran » Thu Nov 07, 2019 4:29 pm

KingRiggs wrote:
Thu Nov 07, 2019 8:40 am
In the future, when doing your backdoor Roth conversion (conversion from tIRA to Roth IRA), see if you can specify to convert the "total balance" instead of a set dollar amount. This avoids the little crumbs left over in your tIRA after the conversion. It's also easier if you keep the tIRA funds on something very low-yielding, such as a money market fund in order to minimize gains since it will only be there a short time.
Converting the total balance should prevent leaving little crumbs. However, it did not in my case last year. The IRA custodian was not Vanguard.

I used the option to convert the total balance of a brokerage IRA. However, the accrued interest of cash settlement component of the brokerage account was not included in the conversion. It was added to the traditional IRA at the end of the month.

Before doing a future conversion of the total balance, I will change the settlement account to another option that the brokerage has and see if the accrued interest is included in the conversion with the other option.

retiredjg
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Re: Backdoor Roth left a few dollars in traditional IRA does this cause pro rata??

Post by retiredjg » Thu Nov 07, 2019 6:15 pm

neurosphere wrote:
Thu Nov 07, 2019 8:35 am
Because the OP can just leave those $2 in the traditional IRA and mix it with next years $6000 contribution. Not worth worrying about. Even if the $2 somehow magically grew to $20, the taxes on the gains are trivial. Then again, it's trivial to click the "convert to a Roth" button and get rid of the $2. :)
I would not leave the $2 in the traditional IRA because if you do, the conversion step of the back door has to be pro-rated with that $2 left in IRA at the end of the year.

It is not going to change things much, but I would just want it all to be cleaner.

Convert the $2 and pay tax on it and be done.

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