Q. Should I have converted the TOTAL Traditional IRA (A) or $6008 balance to the Roth in that first Backdoor Roth Conversion?
A. Yes.
Q. Since there was/is a balance of $9 in Traditional IRA (A) on 12/31/2022, will the first Backdoor Roth conversion be a taxable event? If so, how will we be taxed for that event? Will the Roth now be taxed a second time (post-tax $ invested, taxed again upon withdrawal)?
A. This year's contribution cannot be converted in isolation from any other traditional IRA (TIRA) money. Assuming that was her only TIRA money. The calculation goes like this: $6008.69 balance in all your existing traditional IRAs and that balance consist of $6000 in deductible contributions and $8.69 in earnings . This year you convert $6000 to a Roth. 99.855% (6000/6008.69) of the $6000 conversion ($5991) will be tax free ($9 of the conversion is taxable income). This is the way the IRS requires it to be done. The calculations will be shown on form 8606.
Just to make it more complicated, you cost basis in your $$8.69 balance, is $8.68. Rounding, the whole $9 is basis.
Q. What is the best way to handle the $9 in the Traditional IRA (A) now to minimize taxes?
A. Include it in the 2023 conversion.
Q. If the Traditional IRA (A) backdoor Roth was a taxable event, will it affect taxes on future Backdoor Roth Conversions (e.g. 2023)?
A. Yes, the same percentage calculation of the taxable amount will have to be made. The simple solution is convert everything. TurboTax can do the calculation.
