Handling Incurred Interest for Backdoor Roth IRA

[Anonymous]

Hi all,  I followed the steps listed here for filling out the information for a Backdoor Roth IRA, but I'm not sure if the final outcome on my Form 8606 is correct. Due to a few days of waiting for the deposit in the Traditional IRA to become available for the conversion to the Roth IRA account, the Traditional IRA account accrued interest, leaving an account balance of $2.70 on December, 31, 2023. I contributed the max $6500 in the Traditional IRA in 2023 and converted the full $6500 amount to the Roth IRA.

On Form 8606, lines 2 and 6 are blank even though there was $2.70 balance remaining. This led to the below lines:

Line 13 = $6497

Line 14 = $3

Line 16 = $6500

Line 17 = $6497

Line 18 = $3

Is this correct? I would have expected either line 2 or line 6 to be $3 based on my entry for the TurboTax question of Value of your Traditional, SEP and Simple IRAs on December 31, 2023 set to $2.70 (rounded to $3).

[dmertz · Accepted solution]

Yes, this is correct.  The $3 ($2.70 rounded up) is all basis in your traditional IRAs to be included in the calculation of the taxable amount of the next distribution you make from a traditional IRA, carried over to line 2 of the next Form 8606 that you file.

It would have been better to just convert the entire $6,502.70 to Roth.

[Astroprop121]

I did exactly this and Vanguard is reporting 6501.50 on my tax forms.

TurboTax doesn't seem to be taxing the 1.50 extra interest accrued on the form 1098.

Is there a certain question I'm answering wrong?

[AnnetteB6]

Double check the amount that you entered as the non-deductible Traditional IRA contribution to be sure that you did not include the extra $1.50.  If $6500 was entered as the contribution, then the $1.50 should be taxable on Form 1040 line 5b.

@Astroprop121 

[Astroprop121]

Is this the income or deductions section of the turbotax software that this would be entered.

No matter what combination of choices I do, I either have a taxable amount of $6502, or 0. I can't seem to get it to just accept the $2 excess ($1.51 rounded up)

[AnnetteB6]

The non-deductible Traditional IRA contribution amount would be entered in the Deductions and Credits > Retirement and Investments > Traditional and Roth IRA Contributions section of your return.

@Astroprop121 

[Astroprop121]

Not sure what the glitch was, but I deleted all the data from both sections and redid it and my federal tax due went up by $1. What a productive use of time figuring that one out. Thanks for your help.