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Retirement tax questions
@gsh890123 wrote:
Hello, I am in a similar situation. I contributed $7K in December to traditional IRA but my brokerage says that the funds will not be available to transfer into Roth IRA until Jan 9. It looks like it will earn an interest for that duration. My questions then are 1) can I still make this as a 2024 backdoor contribution to Roth in Jan? 2) Since the funds in my traditional IRA is going to earn interest, will this prevent me from transferring to Roth IRA? How would I report my 2024 taxes?
Conversions are not retroactive.
For 2024, the only thing to report is a non-deductible contribution to a traditional IRA. This will be recorded on form 8606 as part of your tax return.
On January 9, you convert the entire amount. Let's say it is $7020 with interest. On your 2025 tax return, to be filed in 2026, you report a conversion of $7020. Because you have a non-deductible basis of $7000, you only pay income tax on the $20 of tax-free earnings.
Of course, this assumes you have no other balances in any traditional IRA.
You can do this again in 2025. Suppose you contribute another $7000 for 2025 on June 1, and you have to wait for June 15 to convert it, at which time it is worth $7020. Then, on your 2025 tax return you would report a $7000 non-deductible contribution and a total conversion of $14,040. With $14,000 of non-deductible basis, only the $40 of tax-free earnings during the waiting period is now taxable when it goes into the Roth.