What to do with $0.02 interest accumulated in my IRA after backdoor Roth

[chanloklun]

At the beginning of 2018, I've done my first ever backdoor Roth.  I deposited $5,500 into my Traditional IRA, then convert the entire amount to Roth IRA the next day.  However, I'm now left with $0.02 in my Traditional IRA because my $5,500 earned interest for that one day before I did the Roth conversion.

What should I do with it?  Should I just leave it in my Traditional IRA?  What's the implication when I do the backdoor Roth again next year?  Should I convert this $0.02 to Roth?  Again, any tax implications when I file my tax return for 2018 next year?

[wally world]

Hi chanloklun-

Luckily, there is a whole blog post on this very topic. All your questions are answered within. Enjoy!

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

[The White Coat Investor]

Could be worse. I've got $0.42 in mine!

[nachos31]

Wild night on the town! Yowza! Just my $0.02

See link posted by Wally World.

[Anne]

You could give your $0.02 to every thread on this forum and you'd still have money leftover

[chanloklun]

Thank you so much.

[Peds]

chanloklun wrote:

At the beginning of 2018, I’ve done my first ever backdoor Roth.  I deposited $5,500 into my Traditional IRA, then convert the entire amount to Roth IRA the next day.  However, I’m now left with $0.02 in my Traditional IRA because my $5,500 earned interest for that one day before I did the Roth conversion.

What should I do with it?  Should I just leave it in my Traditional IRA?  What’s the implication when I do the backdoor Roth again next year?  Should I convert this $0.02 to Roth?  Again, any tax implications when I file my tax return for 2018 next year?

Click to expand...

Obviously you didn't convert the entire amount.

[Dr. Mom]

Just call your broker and tell them to move it to the Roth also.  When you fill out Form 8606, you round to the dollar so $0.02 doesn't matter.

[DynamicHipScrew]

Dumb question, but the proper procedure is to 1) contribute to tIRA, 2) convert to Roth, then 3) invest in ETF, mutual fund, stock, etc. correct?

You do not invest then convert, correct?

[Dr. Mom]

DynamicHipScrew wrote:

Dumb question, but the proper procedure is to 1) contribute to tIRA, 2) convert to Roth, then 3) invest in ETF, mutual fund, stock, etc. correct?

You do not invest then convert, correct?

Click to expand...

• Convert, then invest.

[Peds]

DynamicHipScrew wrote:

Dumb question, but the proper procedure is to 1) contribute to tIRA, 2) convert to Roth, then 3) invest in ETF, mutual fund, stock, etc. correct?

You do not invest then convert, correct?

Click to expand...

technically for 1st timers: its open tIRA -> contribute -> open rIRA -> convert -> invest.

a lot of people seem to not realize they have to open the actual accounts they want to move money into.

[eyeballs]

My traditional IRA (with Fidelity) accumulated $1.66 in interest by the time the $5,500 I initially contributed cleared and I was able to convert to Roth IRA about a week later. When I made the conversion, I selected the option to convert the "Entire Amount" and the interest that accumulated didn't show up in my tIRA until several days later. Am I supposed to convert this $1.66 over to my rIRA also to ensure that my tIRA balance is zero by the end of the year? I had thought the limit for Roth IRA contributions was $5,500, but I'm getting the impression that this residual amount in interest in my tIRA should be converted too, unless I'm mistaken.

[Bmac]

I believe you could still convert the $1.66 now as it represents investment return. You would owe tax on the amount (obviously minimal). Or, since the annual max rises to $6000 for 2019, you could wait until you make your 2019 contribution (and contribute $5998.34). In the long run probably makes close to zero difference.

[Peds]

eyeballs wrote:

My traditional IRA (with Fidelity) accumulated $1.66 in interest by the time the $5,500 I initially contributed cleared and I was able to convert to Roth IRA about a week later. When I made the conversion, I selected the option to convert the “Entire Amount” and the interest that accumulated didn’t show up in my tIRA until several days later. Am I supposed to convert this $1.66 over to my rIRA also to ensure that my tIRA balance is zero by the end of the year? I had thought the limit for Roth IRA contributions was $5,500, but I’m getting the impression that this residual amount in interest in my tIRA should be converted too, unless I’m mistaken.

Click to expand...

yes convert the entire amount.

you will owe tax on $1.66. in the 24% bracket, that is $0.39.

Since the IRS rounds, you will owe.....$0.

[Peds]

Bmac wrote:

Or, since the annual max rises to $6000 for 2019, you could wait until you make your 2019 contribution (and contribute $5998.34).

Click to expand...

thats not how that works.

you would therefore be missing out on the full 2019 amount, and still owe tax on whatever 1.66 grew to given the prorata rule.