How can I enter the accrual of a small interest converted to Backdoor Roth Ira?

[tomkk99]

Hi, I did a backdoor Roth this year. I contributed $8000 to traditional IRA in my Vanguard account, but while I was waiting for the time that the funds were available to be converted, I ended up accruing a small interest in the tradtional IRA account. the value became $8004.63. As a result, I contributed an additional $4.63 and converted to Roth ($8004.63 in Roth IRA). How do I enter this in my Turbotax? Please guide me step by step, thank you.

[baldietax]

Hi I'm not a CPA/expert and others can weigh in, but this article should help on the steps:

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-backdoor-roth-...

As described there are generally 2 parts to this (based on desktop version):

1) Under Deductions&Credits / Retirement and Investments, you would put in the details of the IRA contribution which is presumably (and necessarily) nondeductible.  This should generate form 8606 (see under Forms view) which will track the basis and do the key calculation for the tax on the conversion.

2) You'll get a 1099-R for the $8004.63 from Vanguard to input under Wages&Income / Retirement Plans with the appropriate coding in Box 7 (code 2).

If this is your only IRA and that MV at year-end was $0 after the conversion, then Form 8606 should end up determining you did an 8004.63 conversion on a cost basis of 8000 and the 4.63 is taxable, and feed that into Form 1040 line 4.

Hope that helps.

[tomkk99]

Thank you for your help. I really appreciate it.

If I understand correctly, under Deductions&Credits / Retirement and Investments, when I put in the details of the IRA contribution, when Turbo Tax asks <Tell Us How Much You Contributed>, I should put in $8000 for the total traditional IRA contributions in 2024, not $8004.63, right?

And then, if I put in $0 for the value of traditional IRAs on 31 Dec 2024, by doing that, the Form 8606 should end up determining that I did an 8004.63 conversion on a cost basis of 8000 and the 4.63 is taxable, and feed that into Form 1040 line 4 automatically.

I was wondering where I need to enter the $4.63 on Turbo Tax, but I don't need to. It will be calculated automatically, did I understand correctly?

[baldietax]

Hi no worries... yes your IRA contribution was $8000 which is the limit for 2024 (assume you're over 50) not $8004.63.  Also assuming your Modified AGI is above the limit for your filing status to make this entirely non-deductible, and you had "earned income" above $8000.

there are 2 things needed to drive the rest

1) the MV of 0 is telling Form 8606 (Line 6) about your total IRAs which in this case is just one account that's now zero

2) you also need the 1099-R which feeds 8606 (Line 😎 with the distribution/conversion amount of $8004.63.  I don't think Vanguard has released 1099's yet.

You won't need to input the 4.63 directly, Form 8606 does the calculation.  I would advise reviewing the final 8606 line items.

This is a good article which shows what the final 8606 should look like

https://www.whitecoatinvestor.com/pennies-and-the-backdoor-roth-ira/

If you want to test the process you can mock up a 1099-R by putting 8004.63 in boxes 1+2, check box 2b "taxable amount not determined", select code 2 in box 7 and check IRA/SEP/SIMPLE - but pls do not rely on this and wait/update for the actual 1099-R from Vanguard for filing.  When you put the 1099-R into TT you will get to the "what did you do with the money" screen and here you will put in the total Roth conversion amount which will feed 8606 Line 8.

You will also get form 4598s on the IRA accounts which just confirm the transactions and market values, not sure timing of those from Vanguard but they are not needed to file (as conversions can happen right up until filing deadline and then final 4598s go out in May but if you did yours last calendar year you may get one now from Vanguard).

Again to caveat I'm not a CPA/Expert, just my 2 cents to the best of my knowledge.

[baldietax]

Hi no worries.  So I posted a reply which disappeared from TT after I tried to fix a typo, so I'll try to remember what I wrote and maybe will get duplicate but here goes...

Your IRA contribution is $8000 which is the max for 2024 assuming you're over 50.  Also assuming you have a Modified AGI above the limit for your filing status for this to be entirely non-deductible, and you have "earned income" of at least $8000.

For the conversion there are two parts:

1) The MV of 0 feeds thru to Form 8606 Line 6 which is meant to tell 8606 about your entire IRA situation, in this case a single account now at zero

2) You need to input the 1099-R along with the "what did you do with the money" question where you specify in TT how much was a Roth conversion, which will feed 8606 Lines 7+8

You don't need to input the $4.63 specifically, Form 8606 should spit that out - recommend reviewing the line items on 8606 in forms view.

Vanguard probably hasn't released your 1099-R yet, if not you can mock it up in TT to test the process, but do not rely on this for final filing please wait/update based on final 1009-R from Vanguard.  You need to plug 8004.63 in Box 1+2, check 2b "taxable amount not determined", code 2 in Box 7, and check "IRA/SEP/SIMPLE" box.

This article has a good example of what the 8606 should look like for this case

https://www.whitecoatinvestor.com/pennies-and-the-backdoor-roth-ira/

You will also get Form 4598s for the IRAs which just confirm the transactions and market values but these are not needed for filing.  If you did the conversion in calendar year 2024 you may get one from Vanguard in the next few weeks, otherwise final 4598s are sent in May due to transactions done up until filing deadline.

Again caveat I'm not a CPA/Expert - just my 2 cents to the best of my knowledge/experience.

[baldietax]

I'm trying to post a reply but TT keeps ignoring it, not sure if it's the link I included.  trying a test post...

[baldietax]

ok trying this without the link...

Your IRA contribution is $8000 which is the max for 2024 assuming you're over 50.  Also assuming you have a Modified AGI above the limit for your filing status for this to be entirely non-deductible, and you have "earned income" of at least $8000.

For the conversion there are two parts:

1) The MV of 0 feeds thru to Form 8606 Line 6 which is meant to tell 8606 about your entire IRA situation, in this case a single account now at zero

2) You need to input the 1099-R along with the "what did you do with the money" question where you specify in TT how much was a Roth conversion, which will feed 8606 Lines 7+8

You don't need to input the $4.63 specifically, Form 8606 should spit that out - recommend reviewing the line items on 8606 in forms view.

Vanguard probably hasn't released your 1099-R yet, if not you can mock it up in TT to test the process, but do not rely on this for final filing please wait/update based on final 1009-R from Vanguard.  You need to plug 8004.63 in Box 1+2, check 2b "taxable amount not determined", code 2 in Box 7, and check "IRA/SEP/SIMPLE" box.

You will also get Form 4598s for the IRAs which just confirm the transactions and market values but these are not needed for filing.  If you did the conversion in calendar year 2024 you may get one from Vanguard in the next few weeks, otherwise final 4598s are sent in May due to transactions done up until filing deadline.

Again caveat I'm not a CPA/Expert - just my 2 cents to the best of my knowledge/experience.

[dmertz · Accepted solution]

I assume that both the contribution and the conversion occurred in 2024.  Simply:

1. Enter an $8,000 traditional IRA contribution
2. Enter the 2024 Form 1099-R that shows the $8,004.63 Roth conversion, indicate that you moved some or all of the money to a different retirement account, that you did a combination of rolling over, converting and cashing out, then indicate that the entire $8,004.63 was converted to Roth.

These are two independent transactions other than the fact that the traditional IRA contribution adds to your basis in nondeductible traditional IRA contributions and the Roth conversion subtracts from this basis, all shown on Form 8606 Parts I and II.