Hello, I am trying to do Backdoor Roth IRA conversion between Traditional IRA and Roth IRA account.
I am using Fidelity which takes about 10 days before I can transfer funds in Traditional IRA to Roth IRA after my money is transferred to the Traditional IRA account. However I already seeing 40 cents of reinvested dividend in my Traditional IRA account only 2 days after $6500 is deposited there. I am wondering what should I do with the extra dividend when I can convert funds from Traditional IRA to Roth IRA.
My questions are:
1. Should I just transfer $6500 and leave the extra dividends in the Traditional IRA so my money growth in Roth IRA won't get taxed in the future?
2. In case I need to convert everything from Traditional IRA to Roth IRA, do I need to pay the tax for dividend next year or wait until retirement?
Thanks in advance!
Convert the entire amount. There is no limit on the amount that you can convert. You'll pay tax on the gain.
If you leave the gain in the traditional IRA, the $6,500 that you do convert will be slightly taxable and an equal amount of basis in nondeductible traditional IRA contributions will remain in your traditional IRAs to be applied to future distributions, so it doesn't make sense not to convert the entire amount so that you end up with a zero balance in your traditional IRAs at the end of 2024. Fidelity tends to deposit gains monthly, so there's a good chance that you'll still end up with a little bit of gain that you'll need to convert as a second conversion to be combined with the first.
Convert the entire amount. There is no limit on the amount that you can convert. You'll pay tax on the gain.
If you leave the gain in the traditional IRA, the $6,500 that you do convert will be slightly taxable and an equal amount of basis in nondeductible traditional IRA contributions will remain in your traditional IRAs to be applied to future distributions, so it doesn't make sense not to convert the entire amount so that you end up with a zero balance in your traditional IRAs at the end of 2024. Fidelity tends to deposit gains monthly, so there's a good chance that you'll still end up with a little bit of gain that you'll need to convert as a second conversion to be combined with the first.