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How can I enter the accrual of a small interest converted to Backdoor Roth Ira?

Forum|Forum|1 year ago
January 13, 2025
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Hi, I did a backdoor Roth this year. I contributed $8000 to traditional IRA in my Vanguard account, but while I was waiting for the time that the funds were available to be converted, I ended up accruing a small interest in the tradtional IRA account. the value became $8004.63. As a result, I contributed an additional $4.63 and converted to Roth ($8004.63 in Roth IRA). How do I enter this in my Turbotax? Please guide me step by step, thank you.

Best answer by dmertz

I assume that both the contribution and the conversion occurred in 2024. Simply:

Enter an $8,000 traditional IRA contribution
Enter the 2024 Form 1099-R that shows the $8,004.63 Roth conversion, indicate that you moved some or all of the money to a different retirement account, that you did a combination of rolling over, converting and cashing out, then indicate that the entire $8,004.63 was converted to Roth.

These are two independent transactions other than the fact that the traditional IRA contribution adds to your basis in nondeductible traditional IRA contributions and the Roth conversion subtracts from this basis, all shown on Form 8606 Parts I and II.

baldietax

Hi I'm not a CPA/expert and others can weigh in, but this article should help on the steps:

https://ttlc.intuit.com/turbotax-support/en-us/help-article/retirement-benefits/enter-backdoor-roth-ira-conversion/L7gGPjKVY_US_en_US?uid=m5vtgo6f

As described there are generally 2 parts to this (based on desktop version):

1) Under Deductions&Credits / Retirement and Investments, you would put in the details of the IRA contribution which is presumably (and necessarily) nondeductible. This should generate form 8606 (see under Forms view) which will track the basis and do the key calculation for the tax on the conversion.

2) You'll get a 1099-R for the $8004.63 from Vanguard to input under Wages&Income / Retirement Plans with the appropriate coding in Box 7 (code 2).

If this is your only IRA and that MV at year-end was $0 after the conversion, then Form 8606 should end up determining you did an 8004.63 conversion on a cost basis of 8000 and the 4.63 is taxable, and feed that into Form 1040 line 4.

Hope that helps.

T

tomkk99Author

Thank you for your help. I really appreciate it.

If I understand correctly, under Deductions&Credits / Retirement and Investments, when I put in the details of the IRA contribution, when Turbo Tax asks <Tell Us How Much You Contributed>, I should put in $8000 for the total traditional IRA contributions in 2024, not $8004.63, right?

And then, if I put in $0 for the value of traditional IRAs on 31 Dec 2024, by doing that, the Form 8606 should end up determining that I did an 8004.63 conversion on a cost basis of 8000 and the 4.63 is taxable, and feed that into Form 1040 line 4 automatically.

I was wondering where I need to enter the $4.63 on Turbo Tax, but I don't need to. It will be calculated automatically, did I understand correctly?

T

tomkk99Author

no worries I was working through a Roth conversion and Form 8606 also, so it was a helpful and timely question. looks like TT did get the original posts so you got the info 3 times slightly differently lol.

just wanted to check also that you're aware of the 5 year holding period for the conversion, see following (Schwab and Fidelity have good articles on these type of topics).

https://www.fidelity.com/learning-center/personal-finance/retirement/roth-ira-5-year-rule#:~:text=As%20previously%20noted%2C%20the%205,owner%20is%2059%C2%BD%20or%20older.

Dear baldietax

Yes. I have received three different versions of information from you.^ But I read the answers over and over anyway, so it's refreshing to see various versions of the answers. I appreciate the time and care you took to make sure I didn't miss any of the answers. I will read and digest all the material you have provided. Thanks again^^

D

dmertzAnswer

I assume that both the contribution and the conversion occurred in 2024. Simply:

Enter an $8,000 traditional IRA contribution
Enter the 2024 Form 1099-R that shows the $8,004.63 Roth conversion, indicate that you moved some or all of the money to a different retirement account, that you did a combination of rolling over, converting and cashing out, then indicate that the entire $8,004.63 was converted to Roth.

These are two independent transactions other than the fact that the traditional IRA contribution adds to your basis in nondeductible traditional IRA contributions and the Roth conversion subtracts from this basis, all shown on Form 8606 Parts I and II.