Backdoor Roth IRA, contribution over limit?

[Yac]

Hi. I know backdoor Roths have been covered in some depth on the Blog, but I had a particular issue with the backdoor Roth IRA. I had opened a traditional IRA with Vanguard using $5500 with the plan to convert it all to a backdoor Roth. During the conversion process, I noticed that the $5500 I moved out from the money market in the traditional IRA became $5504.98 in the Roth account. Will this be an issue since the annual limit for Roth contributions is $5500? Do I have to withdraw the $4.98 from the Roth IRA?

Thanks for your help.

[jacoavlu]

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

[DMFA]

You'll owe taxes on $5.

I *think* you *might* survive this one.

[Peds]

Yac wrote:

Hi. I know backdoor Roths have been covered in some depth on the Blog, but I had a particular issue with the backdoor Roth IRA. I had opened a traditional IRA with Vanguard using $5500 with the plan to convert it all to a backdoor Roth. During the conversion process, I noticed that the $5500 I moved out from the money market in the traditional IRA became $5504.98 in the Roth account. Will this be an issue since the annual limit for Roth contributions is $5500? Do I have to withdraw the $4.98 from the Roth IRA?

Thanks for your help.

Click to expand...

no. make sure you convert 100% of it, dont leave anything behind.

you will pay tax on 4.98 since the 5500 is already nondeductible.

in the 24% bracket, that is 1.19 added to your taxes.

since the IRS rounds, its $1.

repeat next year.

[Yac]

Thanks for the replies. Appreciate it as this is the first year I have tried to do the back door Roth.

As a quick follow up, do I need to withdraw the extra ~ $5 over the $5500 that is in the Roth and then just pay tax/penalty on it as a early withdrawal? Or do I just pay taxes on it when I file in the spring? The original contribution to the traditional IRA was after tax which was then converted.

Thanks again for your help.

[saintsfan342000]

jacoavlu wrote:

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

Click to expand...

One of my favorite posts from WCI.  Seeing the 8606 worked out and explained was very helpful.

[jhwkr542]

You just convert the $5 along with the other $5500 and pay taxes when you file. Don't withdraw it.