Hi,
I completed backdoor conversion at Max. and I found there is earned interest in TRA ( I am using Fidelity).
The earned interest is $2.04.
I am wondering what should I do with the earned interest.
I can't convert it to Roth IRA because of limitation of Roth conversion amount ($7500) is full.
Should I extract $2.04 to other account and payed penalty and tax for it at tax report of 2024?
Or any other best way to manage this interest?
Thanks
There is not a limit when it comes to conversions to a Roth IRA, so you can convert the amount to the Roth if you wish. It will be reported on the Form 1099-R for 2024 and will be taxable on the 2024 return because it was earnings in the account.
The limitation with Roth or Traditional IRAs is for contributions, not conversions.
Thanks for the information.
Do you mean it is better to convert $2.04 to Roth IRA from TIRA?
And pay tax at 2024 tax report?
I think Fidelity will provide tax document for 2024.
I heard it is difficult to report backdoor Roth IRA conversion and earned tax using TurboTax.
Tax report using TurboTax of 2024 is my concern.
It is not difficult to report. The amount will be included as part of your Form 1099-R reporting the distribution from your Traditional IRA. You will also have information entered or carried over showing the basis (non-deductible) contributions in that Traditional IRA. The amount that is in excess of the basis (the interest in the account) will automatically be included on your return as taxable income.
It is your choice regarding what you wish to do with the interest in the IRA. I just wanted you to be aware that converting it to a Roth IRA is possible since there is not a limitation on the amount that can be converted. This choice would prevent you from paying the early distribution penalty, which would be minimal, but you can still simply take a taxable distribution for the amount of interest.