Value of your Traditional IRA as of Dec 31 2023

[Jo62]

Hello,

Each year I convert the max IRA contribution and convert it to a Roth. In the process of doing so, my traditional IRA has accumulated interest. Last year the interest was 0.40 and this year the fair market value reported in form 5498 is 1.31. I suppose that I need to now enter this amount as Value of your traditional IRA as of Dec 31. 

Question: Why is this then showing up later in the summary as a $1 taxable distribution? The $1.31 is still in the traditional IRA. 

Thanks in advance

[dmertz]

This is the correct result of the pro rata calculation on Form 8606.  The $1 of your basis that was not permitted to be applied to your Roth conversion remains in your traditional IRAs to be applied to future traditional IRA distributions and Roth conversions.  The $1 on line 14 of this Form 8606 will carry forward to line 2 of the next Form 8606 that you file.

[Jo62]

Thanks for the answer. Sorry there was an error in my description above. I meant to say that I contribute the max amount allowed to the Traditional IRA and then convert the same amount to a Roth within a few days. This results in the accumulation of interest in the Traditional IRA while I'm waiting for the cash to be available for the conversion. I do not convert the interest over to the Roth. 

I do not understand why the $1 is considered a taxable distribution this year since the money is in the Traditional IRA. I would have expected to pay taxes on it if I take a distribution but it shows up on line 4b IRA taxable amount. 

[Jo62]

Also the following lines are blank in the preview:

form 8606  line 6: 

Enter the value of all your traditional, traditional SEP, and traditional SIMPLE IRAs as of December 31,

2023, plus any outstanding rollovers. Subtract certain repayments of qualified disaster distributions, if

any, from 2023 Form(s) 8915-F (see instructions) . . .

Form 8606 line 8:

Enter the net amount you converted from traditional, traditional SEP, and traditional SIMPLE IRAs to

Roth, Roth SEP, or Roth SIMPLE IRAs in 2023. Also, enter this amount on line 16 .

Is this normal? 

[dmertz · Accepted solution]

TurboTax leaves lines 6 through 12 blank when using Worksheet 1-1 from IRS Pub 590-B due to making traditional IRA contributions and Roth conversions in the same year, indicated by asterisks next to lines 13 and 15.

$1 is taxable due to the pro rata calculation that divides the amount converted by the amount converted plus the $1 year-end value.  For example, if your contribution and conversion was for $6,500, the nontaxable amount is $6,500 * $6,500 / $6,501 = $6,499.