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.
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).
Seems like it would be less complicated to just withdraw the 20 cents.
@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?
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).
@dmertz You bring up valid points, and a 1099-R situation I would like to avoid.
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.
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.
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).
take the money out and spend it.
I'm trying to think of something you can buy for twenty cents.
Even if they issue a 1099-R for 20 cents you would not have to report it since it rounds down to zero.
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.