How Do I handle the interest generated in the traditional IRA account after i do the back door conversion?

[Nari12]

In December 2023 my daughter contributed $6500 for 2023 traditional IRA then 5 days later we did the back door conversion of $6500. She just saw there were $5 left in the traditional IRA account. She plan to contribute $7000 for 2024 and do back door again. But how should she handle that $5?

in the 1099 R -1a- $6500, 2a- $6500 , code 2 on line 7. In the turbo tax she answers:

What did you do with the money?   I move to another retirement 

                                                                I did a combination

                                                                Amount $6500 converted to Roth

Let find your IRA basis.                      As of December 31 2022  $0

Value of your traditional IRA as of December 31 2023 : $5

But when I looked at the form 8606 :

                                Line 14  :   non taxable  amount :  $  6495 

                                Line 18 : total basis : $5 ( include this amount in 2023 line 4b)

Line 14 is not the same as the amount in the form 1099 R . Is this ok ?

In short when can she move that $5 to the roth? Can she move it with the $7000 when she contributes to 2024 IRA? Should she clear the traditional IRA to $ 0 before she do another back door this year?

Thank you for helping

[dmertz · Accepted solution]

Form 8606 look like it should.

With no other money in traditional IRAs, ideally all amounts in traditional IRAs should be converted in 2024 so as to leave a $0 balance in traditional IRAs on December 31, 2024.  There is no limit on the amount one can convert to Roth; a Roth conversion is not a regular contribution to a Roth IRA.

[Nari12]

Please let me know if I understand you  correctly:

 I can do the conversion of the excess $5 to roth now ?  Then do another conversion after I contribute $7000 for 2024 contribution?

Or I can do the conversion of the total $7005 ( $7000 for 2024 contribution + $ 5 left in the traditional from 2023) all in one time?

As long as it will be 0 balance at 12/21/2024

Thanks

[dmertz]

You can do Roth conversions whenever you like in 2024 and the conversions will be included on your 2024 tax return.  There are no limits on the amounts or the frequency of Roth conversions, so you can do either of the conversions that you are asking about.

[Nari12]

Many thanks to you for clarification that there is no limit on how many times we can move money from traditional IRA to Roth within a year. I thought  we can only do once a year.

Will the moving of $5 to roth considered as conversion or roll over ?  

[AmyC]

The $5 from traditional to Roth will be a conversion so it can be a separate transaction or with the next lump you contribute.