Reporting Backdoor Roth on 1099-R

[ADP4]

Context: I did a backdoor Roth IRA by opening a Traditional IRA account (i.e., zero basis / zero balance), making a $7,000 nondeductible contribution to a Traditional IRA, and then moving the entire balance in the Traditional IRA (i.e., $7,000) into a Roth IRA. However, a few days after I moved-out the money into Roth, a tiny amount of interest was added to my Traditional IRA account (about $4). 

Question 1: When I enter-in the payer information exactly as it appears in the 1099-R, it appears as "National Financial Services LLC as agent for" ("Fidelity Investments" is not included, since it's on the second line of the 1099-R). This feels strange -- is this correct?

Question 2: The 1099-R that Fidelity sent me has the "Total Distribution" checked in box 2b. It was a total distribution when I made the conversion. However, since I afterwards received an interest payment, there now is money in the IRA account that I'm reporting a "Total Distribution" from. Is that an issue?

Question 3: Because of my nonzero (i.e., $4) Traditional IRA balance at year-end, there should be a pro rata tax on the conversion. I see this as a $4 amount in 4b on my 1040 -- the exact same as if I had waited until the interest payment hit my and then converted the full $7,004 into a Roth. Is this correct -- the pro rata payment appears on the tax forms in the same way that a payout of earnings would?

[DavidD66]

Question 1:  National Financial Services is correct.  They are subsidiary of Fidelity and they do clearing (back office) for Fidelity and other brokers.  Don't worry about the "agent of..." part.  It's not an issue.

Question 2:  Not an issue that you received $4 after taking a distribution marked as "Total Distribution".

Question 3:  Was the $4 reported in box 2a?   If not, enter zero in box 2a.  I don't think there should be $4 on line 4b or your 1040, but it's only $4.    

[ADP4]

Thanks David.

Re. the third question, here's what I see on my 1099-R

[RobertB4444]

No picture came through on that.

@ADP4 

[ADP4]

1. Gross Distribution: $7,000.00

2a Taxable Amount: $7,000.00

2b Taxable Amount Not Determined: YES (box checked)

2b Total Distribution: YES (box checked)

@DavidD66 

[ThomasM125]

The $4 in pension distribution earnings would be correct provided that amount was distributed from the traditional IRA. It doesn't appear to be listed on your form 1099-R from what you listed though. It could have come about from the IRA balance entries you made in TurboTax when you reported the IRA contribution and conversion to the ROTH IRA. If the money is still in the IRA, it would not be taxable so you should review your backdoor IRA entries to insure you entered the IRA balances correctly.

[ADP4]

Yes - it came from the IRA balance entries I made in TurboTax. Because I reported 2024 year-end Traditional IRA balance of $4.

You noted that money remaining in my Trad IRA should not be taxable. I might be misunderstanding your point, but I do have $4 of taxable income from the conversion. Here's the full picture. What happened: contribute $7,000 to Trad IRA (zero existing basis), earn $4 of interest in Trad IRA, convert $7,000 from Trad IRA to Roth IRA. How I think it should be reported: $4 of taxable income for the year because of pro-rata rule ($4 / $7,004 * $7,000) and receive $4 of basis in my Trad IRA.

Is any of the above wrong?

[DavidD66]

No, the information in your last post is correct.   Report it like that.  Keep in mind you're talking about $4.00.