[Backdoor Roth: Am I doing this correctly?]

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outbackcountry
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[Backdoor Roth: Am I doing this correctly?]

Post by outbackcountry » Sun Jan 12, 2020 7:25 pm

[Moved into a new thread from: Few dollars remainder in TIRA due to backdoor roth --admin LadyGeek]

Didn't want to open a new thread but I'm in similar situation; also want to confirm if I'm filling the form 8606 correctly.
Doing the backdoor for the first time; here are the details:

1. Rolled over an old rollover IRA (came from a past employer 401k) to my current employer 401k: $39K. Rolled this over in December
2. I should have done the rollover little earlier in the year! even though the rollover was complete within a week/10days (both rollover IRA and the 401k are with Fidelity), there was a credit of $21.03 as of December 31st in the rollover IRA account. I didn't realize this until the first week of Jan as I'm pretty sure didn't see it on the 31st. This must have got posted on the 1st or 2nd
3. I made the non-deductible contribution $6K to the tIRA before 31st and converted to the Roth IRA account (both with Fidelity) within a week, before the 31st. However ended up with $1.23 as of December 31st on the tIRA account. Again amount posted just after the 31st
4. Dont have any other IRA account, other than the employer 401k. I have a former employer 410k account at Vanguard; I have retained that and not rollover to my current employer 401k or a rollover IRA account.

Since its already 2020, thought I would be better off by just leaving the above in the accounts. For the rollover IRA, I may do another rollover in 2020 to my current employer 401K to clear the balance, but how do we make sure there are no credits after the rollover? its in the money market account, so obviously Fidelity will post interests, if any, end of the month or most likely the first week of the next month.

For the tIRA, I was planning on doing the conversion in 2020 for 2020, later in the year, once the 2019 taxes have been filed. Any harm in leaving the above as-is?

With the above, I filled out my form 8606 using the draft 2019 IRS form and this is how it looks:

Line 1: 6000
Line 2: 0 (Doing this for the first time)
Line 3: 6000
Line 4: 0
Line 5: 6000
Line 6: 22.26 (22.03 from rollover IRA and 1.03 from tIRA) - I shouldnt be including the ROTH IRA account for this line 6, right?
Line 7: 0 (is this correct?) - didn't include the 39K rollover to my employer 401k
Line 8: 6000
Line 9: 6022.26
Line 10: 0.99600 (rounded to 3 decimals)
Line 11: 5976
Line 12: 0
Line 13: 5976
Line 14: 24
Line 15a: 0
Line 15b: 0
Line 15c: 0
Line 16: 6000
Line 17: 5976
Line 18: 24

If I dont do anything for the 2019 tax yr, does the above look ok?

Also I'm trying to understand the concept of Bases (line 14) in this context. Looks like this will continue for future years as well.

Thanks in advance for all your inputs.

Note: the ROTH IRA account (with Fidelity) that I'm converting into has balances on it (it was from a past rollover of employer ROTH 401K).

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

Re: Few dollars remainder in TIRA due to backdoor roth

Post by retiredjg » Sun Jan 12, 2020 7:30 pm

outbackcountry wrote:
Sun Jan 12, 2020 7:25 pm
Didn't want to open a new thread but I'm in similar situation; also want to confirm if I'm filling the form 8606 correctly.
Doing the backdoor for the first time; here are the details:

1. Rolled over an old rollover IRA (came from a past employer 401k) to my current employer 401k: $39K. Rolled this over in December
2. I should have done the rollover little earlier in the year! even though the rollover was complete within a week/10days (both rollover IRA and the 401k are with Fidelity), there was a credit of $21.03 as of December 31st in the rollover IRA account. I didn't realize this until the first week of Jan as I'm pretty sure didn't see it on the 31st. This must have got posted on the 1st or 2nd
3. I made the non-deductible contribution $6K to the tIRA before 31st and converted to the Roth IRA account (both with Fidelity) within a week, before the 31st. However ended up with $1.23 as of December 31st on the tIRA account. Again amount posted just after the 31st
4. Dont have any other IRA account, other than the employer 401k. I have a former employer 410k account at Vanguard; I have retained that and not rollover to my current employer 401k or a rollover IRA account.

Since its already 2020, thought I would be better off by just leaving the above in the accounts. For the rollover IRA, I may do another rollover in 2020 to my current employer 401K to clear the balance, but how do we make sure there are no credits after the rollover? its in the money market account, so obviously Fidelity will post interests, if any, end of the month or most likely the first week of the next month.

For the tIRA, I was planning on doing the conversion in 2020 for 2020, later in the year, once the 2019 taxes have been filed. Any harm in leaving the above as-is?

With the above, I filled out my form 8606 using the draft 2019 IRS form and this is how it looks:

Line 1: 6000
Line 2: 0 (Doing this for the first time)
Line 3: 6000
Line 4: 0
Line 5: 6000
Line 6: 22.26 (22.03 from rollover IRA and 1.03 from tIRA) - I shouldnt be including the ROTH IRA account for this line 6, right?
Line 7: 0 (is this correct?) - didn't include the 39K rollover to my employer 401k
Line 8: 6000
Line 9: 6022.26
Line 10: 0.99600 (rounded to 3 decimals)
Line 11: 5976
Line 12: 0
Line 13: 5976
Line 14: 24
Line 15a: 0
Line 15b: 0
Line 15c: 0
Line 16: 6000
Line 17: 5976
Line 18: 24

If I dont do anything for the 2019 tax yr, does the above look ok?

Also I'm trying to understand the concept of Bases (line 14) in this context. Looks like this will continue for future years as well.

Thanks in advance for all your inputs.

Note: the ROTH IRA account (with Fidelity) that I'm converting into has balances on it (it was from a past rollover of employer ROTH 401K).
I've asked the moderator to move this to a new thread so that replies to you don't get confused with the needs of the original poster. :happy

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LadyGeek
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Re: [Backdoor Roth: Am I doing this correctly?]

Post by LadyGeek » Sun Jan 12, 2020 8:54 pm

^^^ Thanks! I have moved the posts into a new thread, which is in the Personal Finance (Not Investing) forum (tax question).

On an administrative note, Roth is not an acronym. See the wiki: Roth IRA
Named after US Senator William Roth, Roth IRAs were established by the Taxpayer Relief Act of 1997.
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HomeStretch
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Re: [Backdoor Roth: Am I doing this correctly?]

Post by HomeStretch » Sun Jan 12, 2020 9:16 pm

Convert the $22.26 in pretax IRA earnings to your Roth IRA now. Likely you will see a few more cents in pretax IRA earnings on the $22.26...convert that too. You want your pretax IRA balances to be zero.

Your 2019 Form 8606 looks correct to me.

Yes, you do not include your 12/31/19 Roth IRA balance in line 6 or your 12/2019 IRA-to-401k rollover in line 7.

The $24 on your 2019 Form 8606 Line 14 will carryforward to 2020 Form 8606 Line 2. If your IRA pretax balances at 12/31/20 are zero (due to converting in 2020 all IRA pretax earnings to your Roth IRA), you will not have any more basis to carryforward to 2021.

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Duckie
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Re: [Backdoor Roth: Am I doing this correctly?]

Post by Duckie » Sun Jan 12, 2020 9:46 pm

outbackcountry wrote:there was a credit of $21.03 as of December 31st in the rollover IRA account.
<snip>ended up with $1.23 as of December 31st on the tIRA account.
<snip>
I may do another rollover in 2020 to my current employer 401K to clear the balance, but how do we make sure there are no credits after the rollover?
It's $22.26, just convert both IRAs now.

In the future after converting check back in a month or so to see if there are any tailing dividends. If they show up, convert them. Then a month later check again and convert.
For the tIRA, I was planning on doing the conversion in 2020 for 2020, later in the year, once the 2019 taxes have been filed.
When are you planning to contribute to the Roth IRA for 2020? You should convert ASAP after contributing.
Any harm in leaving the above as-is?
The sooner you convert the $22.26 the fewer pennies it will gain.
With the above, I filled out my form 8606 using the draft 2019 IRS form and this is how it looks:

Line 1: 6000
Line 2: 0 (Doing this for the first time)
Line 3: 6000
Line 4: 0
Line 5: 6000
Line 6: 22.26 (21.03 from rollover IRA and 1.03 from tIRA) - I shouldn't be including the ROTH IRA account for this line 6, right?
Right.
Line 7: 0 (is this correct?) - didn't include the 39K rollover to my employer 401k
Correct.
Line 8: 6000
Line 9: 6022.26
Line 10: 0.99600 (rounded to 3 decimals)
The directions say to round to at least three, but the more decimals the better. Try 0.9963. That would put 5977.82 (5978) on line 11 and 22.17 (22) on line 14.
Line 11: 5976
Line 12: 0
Line 13: 5976
Line 14: 24
Line 15a: 0
Line 15b: 0
Line 15c: 0
Line 16: 6000
Line 17: 5976
Line 18: 24

If I don't do anything for the 2019 tax yr, does the above look ok?
Other than the extra decimal, yes.
Also I'm trying to understand the concept of Bases (line 14) in this context. Looks like this will continue for future years as well.
It won't if you contribute for 2020 and convert everything. That will give you 0 on line 14 to carry forward to line 2 the next year.
Note: the ROTH IRA account (with Fidelity) that I'm converting into has balances on it (it was from a past rollover of employer ROTH 401K).
That doesn't matter one way or the other.

livesoft
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Re: [Backdoor Roth: Am I doing this correctly?]

Post by livesoft » Mon Jan 13, 2020 8:42 am

HomeStretch wrote:
Sun Jan 12, 2020 9:16 pm
Convert the $22.26 in pretax IRA earnings to your Roth IRA now. Likely you will see a few more cents in pretax IRA earnings on the $22.26...convert that too. You want your pretax IRA balances to be zero.
As everyone is imploring the OP, it is better to convert this now. If one waits, then one will be paying more taxes on the gains that this money makes in the tax-deferred plan. It is better to have the gains made in the Roth where they will be tax free. That can only happen if the $22.26 is in the Roth, so get it over there by converting it now.

Then check if the $22.26 made any tax-deferred income. If so, convert it as well.
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retiredjg
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Re: [Backdoor Roth: Am I doing this correctly?]

Post by retiredjg » Mon Jan 13, 2020 8:59 am

Unlike the others, I'm going to say DO NOT convert just yet.

We have heard here that sometimes that money that appears in an IRA will get sent on to the 401k without you doing anything. I'd wait until next month. If it is still there on Feb 4 (2 working days into Feb) then it is probably not going to disappear to the 401k. If it is still there in Feb that is the time to convert it to Roth in my opinion.

You can convert the $1 that is in the other IRA at any time. I'd just wait and convert it with my 2020 contribution, but I'm lazy like that.

Likewise, don't actually do the Form 8606 until you see if the $22 disappears. Note: if you use tax software, lines 6 - 12 may be blank because the calculation is done on a worksheet in the background. Do not let this concern you if the taxable amount and the basis come out right.

Your Form 8606 is right (Yay! Someone did it right! :D ) if those amounts were actually in the IRAs on 12/31/19. It sounds like you are not exactly sure of that. I'd check the dates again to see when it was actually posted. If it was posted on 12/31, I guess you just have to deal with it.

Let us know how this works out.

retiredjg
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Re: [Backdoor Roth: Am I doing this correctly?]

Post by retiredjg » Mon Jan 13, 2020 9:02 am

outbackcountry wrote:
Sun Jan 12, 2020 7:25 pm
Note: the ROTH IRA account (with Fidelity) that I'm converting into has balances on it (it was from a past rollover of employer ROTH 401K).
This is a good time to mention that you need to keep records of all money that goes into your Roth IRA.

For example, some of that rollover from Roth 401k rolled in as contributions and some rolled in as earnings. That should be documented on the 1099. You will need that information if you ever take money out of Roth IRA before age 59.5.

Topic Author
outbackcountry
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Re: [Backdoor Roth: Am I doing this correctly?]

Post by outbackcountry » Mon Jan 13, 2020 9:58 pm

Thanks all for the inputs and feedback. I really appreciate each one of them.

I will wait for few more days and do the conversion to make the balance zero. I will talk to Fidelity regarding the timing and when the interest/incomes get posted to the account and accordingly time the conversion. The converted amount 22.26 (+any income) will be reflected in 2020 form 8606 line 8, correct (+ the 2020 6000 new conversion)? when does line 7 gets filled out? line 7 always confuses me.
LadyGeek wrote:
Sun Jan 12, 2020 8:54 pm
On an administrative note, Roth is not an acronym. See the wiki: Roth IRA
Thanks for the info and appreciate moving this to a new thread.
Duckie wrote:
Sun Jan 12, 2020 9:46 pm

When are you planning to contribute to the Roth IRA for 2020? You should convert ASAP after contributing.

The directions say to round to at least three, but the more decimals the better. Try 0.9963. That would put 5977.82 (5978) on line 11 and 22.17 Other than the extra decimal, yes.
I was planning the contribution and conversion for 2020 sometime in March/April after the 2019 tax filing is completed. I know many do right after January. 2019 being the first year, I wanted to do it after the 2019 tax filing is completed, which wont happen until end of Feb or early March. I can do the contribution and conversion earlier, no real constraints actually.

Thanks for the clarification on the rounding. I will update my form/spreadsheet (created a Google doc spreadsheet for 8606)
retiredjg wrote:
Mon Jan 13, 2020 8:59 am

Likewise, don't actually do the Form 8606 until you see if the $22 disappears. Note: if you use tax software, lines 6 - 12 may be blank because the calculation is done on a worksheet in the background. Do not let this concern you if the taxable amount and the basis come out right.

Your Form 8606 is right (Yay! Someone did it right! :D ) if those amounts were actually in the IRAs on 12/31/19. It sounds like you are not exactly sure of that. I'd check the dates again to see when it was actually posted. If it was posted on 12/31, I guess you just have to deal with it.

Let us know how this works out.
Thanks. I will watch out for the tax software and check how it comes out. I will have the pdf form 8606 filled out, so I can use that to compare the tax software version.
As of now, both the rollover IRA and tIRA show up those small amounts posted on 12/31/2019. I will wait for few more days to make sure those are accurate. Aren't they supposed to send some type of form by end of January to state the balance as of end of December?
retiredjg wrote:
Mon Jan 13, 2020 9:02 am
This is a good time to mention that you need to keep records of all money that goes into your Roth IRA.

For example, some of that rollover from Roth 401k rolled in as contributions and some rolled in as earnings. That should be documented on the 1099. You will need that information if you ever take money out of Roth IRA before age 59.5.
Yes, I didnt maintain it before but have started maintaining a detailed spreadsheet from 2019. For the past years, there has been only two IRA accounts thus far - both from an employer sponsored 401k - pre-tax 401k and Roth 401k accounts converted to a rollover IRA and Roth IRA in 2012 and there has been no inflow or outflow out of those accounts since; I do have documents pertaining to that, so I can create a spreadsheet for that year with details.

Thanks once again for all the inputs.

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

Re: [Backdoor Roth: Am I doing this correctly?]

Post by retiredjg » Tue Jan 14, 2020 7:01 am

outbackcountry wrote:
Mon Jan 13, 2020 9:58 pm
The converted amount 22.26 (+any income) will be reflected in 2020 form 8606 line 8, correct (+ the 2020 6000 new conversion)? when does line 7 gets filled out? line 7 always confuses me.
Yes, it all goes on line 8. I don't think I've ever seen anything on line 7.

As of now, both the rollover IRA and tIRA show up those small amounts posted on 12/31/2019. I will wait for few more days to make sure those are accurate. Aren't they supposed to send some type of form by end of January to state the balance as of end of December?
You may be thinking of form 5498, but that form is not due out till May. I've heard some custodians send it earlier.

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