Hello,
I am aware of several posts in the past regarding the backdoor Roth process - I learned about this process here @ Bogleheads (thank you!) years ago and was implementing it for many years. This year, something is slightly different that caught me by surprise - this is because interest rates are higher than they used to be. Here is the specific case and my question. I know there are experts on this forum so maybe someone can enlighten me - thank you in advance!
Here is what happened in 2023.
- Traditional IRA account balance at the beginning of 2023 is $0.
- $7500 is contributed to the Traditional IRA on July 3rd (to money market).
- Dividend is added to the Traditional IRA account on July 31 and August 31st - total of $59.
- $7559 is converted from the Traditional IRA to a Roth IRA on September 1st - the total value of the account.
- Traditional IRA balance on September 2nd is $0.
- $4 of dividends are added to the Traditional IRA account on September 30th (for the $7559 that were there for 1 day).
- $4 is the balance of the Traditional IRA account on December 31st 2023.
How would the Form 8606 look like? Here is what I think it would look like, leading to a bit of a surprise for me:
- Line 1 - $7500
- Line 3 - $7500
- Line 5 - $7500
- Line 6 - $4 (is this correct? the implication of this caught me by surprise...)
- Line 7 - $0
- Line 8 - $7559
- Line 9 - $7563
- Line 10 - 0.99167 (7500/7563)
- Line 11 - $7496 (7559*0.99167)
- Line 12 - $0
- Line 13 - $7496 (so - not the whole $7500 is nontaxable?- I probably should have moved the $4 to the Roth in early October)
- Line 14 - $4 (so - is this the basis for next year?)
- Line 16 - $7559
- Line 17 - $7496
- Line 18 - $63 (so the 4 dollars that remain in the Traditional IRA are taxable in 2023? (but perhaps now this is also the basis, so no taxes on it in 2024?)
Somehow, dividend on money market was very low in the past so it did not get over a $1 and I was not aware of this issue.
Any comment would be appreciated, especially if you think this From 8606 content is correct or not. It did not occur to me that the prorata rule would hit for dividends that were generated after the conversion (on a zero balance) and remain in the Traditional account.
Thank you for any feedback you may have,
![:)]( "Smile")
4803.
I am aware of several posts in the past regarding the backdoor Roth process - I learned about this process here @ Bogleheads (thank you!) years ago and was implementing it for many years. This year, something is slightly different that caught me by surprise - this is because interest rates are higher than they used to be. Here is the specific case and my question. I know there are experts on this forum so maybe someone can enlighten me - thank you in advance!
Here is what happened in 2023.
- Traditional IRA account balance at the beginning of 2023 is $0.
- $7500 is contributed to the Traditional IRA on July 3rd (to money market).
- Dividend is added to the Traditional IRA account on July 31 and August 31st - total of $59.
- $7559 is converted from the Traditional IRA to a Roth IRA on September 1st - the total value of the account.
- Traditional IRA balance on September 2nd is $0.
- $4 of dividends are added to the Traditional IRA account on September 30th (for the $7559 that were there for 1 day).
- $4 is the balance of the Traditional IRA account on December 31st 2023.
How would the Form 8606 look like? Here is what I think it would look like, leading to a bit of a surprise for me:
- Line 1 - $7500
- Line 3 - $7500
- Line 5 - $7500
- Line 6 - $4 (is this correct? the implication of this caught me by surprise...)
- Line 7 - $0
- Line 8 - $7559
- Line 9 - $7563
- Line 10 - 0.99167 (7500/7563)
- Line 11 - $7496 (7559*0.99167)
- Line 12 - $0
- Line 13 - $7496 (so - not the whole $7500 is nontaxable?- I probably should have moved the $4 to the Roth in early October)
- Line 14 - $4 (so - is this the basis for next year?)
- Line 16 - $7559
- Line 17 - $7496
- Line 18 - $63 (so the 4 dollars that remain in the Traditional IRA are taxable in 2023? (but perhaps now this is also the basis, so no taxes on it in 2024?)
Somehow, dividend on money market was very low in the past so it did not get over a $1 and I was not aware of this issue.
Any comment would be appreciated, especially if you think this From 8606 content is correct or not. It did not occur to me that the prorata rule would hit for dividends that were generated after the conversion (on a zero balance) and remain in the Traditional account.
Thank you for any feedback you may have,
4803.Statistics: Posted by 4803 — Sun Mar 31, 2024 9:53 am — Replies 2 — Views 162