Second Backdoor Roth Conversion In Same Year Question

[starkyfubbs]

Hello. I requested to convert my entire traditional IRA to a Roth IRA (aka backdoor Roth). Because of a delay in processing, after the conversion there was $0.20 left in my traditional IRA. I believe $0.20 was interest that accumulated between time of request, and time of processing.

There are no "harmful tax implications" doing a second Roth Conversion for the remaining $0.20 correct? I have read there are no limits in the number of times one can do a Roth Conversion per year, nor any waiting periods in between conversions. Note I did not withhold any tax using traditional IRA funds for the first conversion, and do not plan to for the second.

Additionally, because I had a mix of deductible and non-deductible contributions in the traditional IRA, I believe it would also simplify tax return calculations if I convert the $0.20, rather than leaving it.

If there is anything I am overlooking please let me know. Thank you.

[Bsch4477]

Seems like it would be less complicated to just withdraw the 20 cents. 

[starkyfubbs]

@Bsch4477 Thanks, I did not think of this. But being under age 59 1/2, wouldn't I owe a 10% penalty on the $0.20 withdrawal? While the Roth conversion would be penalty free.

Granted the penalty would only be $0.02, which perhaps is so small it would not affect the tax return and I would not have to report it?

[Bsch4477]

Yes, it’s a non-issue. Don’t overthink it. 

[starkyfubbs]

@Bsch4477 Understood, thank you.

[dmertz · Accepted solution]

I don't see why taking a distribution would be any simpler than converting it to Roth.   The money has to move to a different account either way.  There is no limitation on the number of Roth conversions one can do.

If the $0.20 distribution (not converted to Roth) is reported by the payer, being under age 59½ would require the $0.20 distribution to be reported on a Form 1099-R  (code 1) separate from the one reporting the total of in-house Roth conversions (code 2). 

[starkyfubbs]

@dmertz You bring up valid points, and a 1099-R situation I would like to avoid. 

[fanfare]

TurboTax, or any other tax software, won't report twenty cents on your tax return, since it is rounded down to zero.

There's no point to even start entering such a 1099-R at tax time.

@starkyfubbs 

[dmertz]

If you plan on doing future traditional IRA contributions and converting to Roth, as long as there is no service fee to maintain the existing traditional IRA with only $0.20 in it you can always just leave the $0.20 there and convert the $0.20 as part of your next conversion. 

[starkyfubbs]

Thanks @fanfare and @dmertz 

After thinking about it some more, I think I will go ahead and convert the remaining 0.20. I have no plans of doing future traditional IRA contributions, except in years where I am not qualified for Roth IRA contribution.

And although 0.20 has no effect on the return, I like to keep things clean and simple (i.e. having less boxes on my 1099R). 

[fanfare]

take the money out and spend it.

I'm trying to think of something you can buy for twenty cents.

@starkyfubbs 

[Bsch4477]

Even if they issue a 1099-R for 20 cents you would not have to report it since it rounds down to zero. 

[dmertz]

An in-house Roth conversion of the $0.20 would simply be included on the code-2 Form 1099-R along with the first conversion.  The the number of cents on the original conversion was between $0.30 and $0.49, the rounded result will increase by $1 but that $1 increase will be unlikely to change the tax liability.

[starkyfubbs]

Thank you all, for your time and input.