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Traditional Roth trailing interest and dividends

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  • Traditional Roth trailing interest and dividends

    At the end of October, I transferred over $100,000 from my traditional Schwab IRA to my workplace 401k at Fidelity so that I could start doing backdoor Roths.

    Immediately prior to the October transfer I sold the mutual funds and securities in my traditional IRA so that Schwab could cut a check to the Fidelity 401k. I uploaded the check to Fidelity without issues and reinvested the money.

    While the schwab check was in the mail to me, over $12 in interest income accumulated in the traditional IRA. I thought “what a hassle”, but I had Schwab cut another check to Fidelity 401k and this time it cleared without more interest accumulating.

    in November, I did my backdoor Roth at Schwab. No problem. My balance was zero in the traditional IRA at the end of November.

    I just checked the traditional IRA this morning and I was shocked to see that there was $47 in the account. One of the single stock securities that I sold in October paid a dividend in early December!

    I am so done with this! I am going to have Schwab transfer this $47 to my Fidelity 401k, but I am worried that more dividends might show up in the traditional IRA before Dec 31. I am desperately trying to avoid triggering the pro-rata rule.

    Any advice?

  • #2
    Just convert it to your Roth and pay the tax on the $47. Just make sure you are choosing to convert all and not a dollar amount. Also, when you contribute to a tIRA just put it in a money market account and then convert as soon as possible.


    • #3
      Sounds good.

      For the record, I transferred all the money the first time immediately from a money market account and the balance was zero when Schwab cut the check. Turns out that in the 7 days that it takes for a six figure check to clear between Schwab and Fidelity, interest gathers in the money market on the balance even though the account reads zero.