roth IRA conversion/tax question

[Anonymous]

I hate doing these. Every time I do it, I swear I'm never doing it again. Here is my mistake: I deposited $6500. In the one day it took to be ready to convert to roth IRA it became 6500.94 and I transferred it all to the roth. IRS is now saying i overpayed the IRA (by $1). I can't convert back to the traditional IRA to get the one dollar refunded. Any idea what I'm supposed to do?

[Anonymous]

What do you mean the IRS is saying you over payed? There are no limits on Roth conversions, you just need to pay taxes on the amounts over the contribution limit (which forms your after tax basis). Did you log the $6500.94 as the contribution on your 8606? $6500 should be your contribution, 6500.94 should be the conversion amounts, and the amount over $6500 forms will require taxes paid in the amount of 94 cents.

I admit the 8606 is confusing but that is how it should play out.

[Anonymous]

Anonymous wrote:What do you mean the IRS is saying you over payed? There are no limits on Roth conversions, you just need to pay taxes on the amounts over the contribution limit (which forms your after tax basis). Did you log the $6500.94 as the contribution on your 8606? $6500 should be your contribution, 6500.94 should be the conversion amounts, and the amount over $6500 forms will require taxes paid in the amount of 94 cents.

I admit the 8606 is confusing but that is how it should play out.

Sorry for the typos, that should say “the amount over $6500 (new basis) will be the amount on which taxes are paid (94 cents).”

[Anonymous]

Anonymous wrote:What do you mean the IRS is saying you over payed? There are no limits on Roth conversions, you just need to pay taxes on the amounts over the contribution limit (which forms your after tax basis). Did you log the $6500.94 as the contribution on your 8606? $6500 should be your contribution, 6500.94 should be the conversion amounts, and the amount over $6500 forms will require taxes paid in the amount of 94 cents.

I admit the 8606 is confusing but that is how it should play out.

Agreed- I had the same thing happen- because of the higher interest rate in settlement accounts our IRA was around $6513 when we converted it last year. We paid tax on it per line 18 of the 8606. The software was able to handle all of it.

[Anonymous]

Anonymous wrote:

Anonymous wrote:What do you mean the IRS is saying you over payed? There are no limits on Roth conversions, you just need to pay taxes on the amounts over the contribution limit (which forms your after tax basis). Did you log the $6500.94 as the contribution on your 8606? $6500 should be your contribution, 6500.94 should be the conversion amounts, and the amount over $6500 forms will require taxes paid in the amount of 94 cents.

I admit the 8606 is confusing but that is how it should play out.

Agreed- I had the same thing happen- because of the higher interest rate in settlement accounts our IRA was around $6513 when we converted it last year. We paid tax on it per line 18 of the 8606. The software was able to handle all of it.

*paid tax on the $13 increase in value.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What do you mean the IRS is saying you over payed? There are no limits on Roth conversions, you just need to pay taxes on the amounts over the contribution limit (which forms your after tax basis). Did you log the $6500.94 as the contribution on your 8606? $6500 should be your contribution, 6500.94 should be the conversion amounts, and the amount over $6500 forms will require taxes paid in the amount of 94 cents.

I admit the 8606 is confusing but that is how it should play out.

Oh the horror…you had to pay tax on $13 in earnings doing your Backdoor Roth

Agreed- I had the same thing happen- because of the higher interest rate in settlement accounts our IRA was around $6513 when we converted it last year. We paid tax on it per line 18 of the 8606. The software was able to handle all of it.

*paid tax on the $13 increase in value.

[Anonymous]

Anonymous wrote:What do you mean the IRS is saying you over payed? There are no limits on Roth conversions, you just need to pay taxes on the amounts over the contribution limit (which forms your after tax basis). Did you log the $6500.94 as the contribution on your 8606? $6500 should be your contribution, 6500.94 should be the conversion amounts, and the amount over $6500 forms will require taxes paid in the amount of 94 cents.

I admit the 8606 is confusing but that is how it should play out.

Agree something does not make sense with OP. A Backdoor Roth contribution literally takes about 10 minutes to do if you know what you’re doing. If you convert it right away, you won’t have any earnings. And if you wait, yes you may have earned a few cents/dollars. So you just pay tax on the few dollars when you convert…not a big deal. Remember a few pennies is not going to matter because you round to the nearest dollar.

[Anonymous]

I am using TurboTax and cannot find figure out how to do it. But I will put in that I contributed 6500 and converted 6501. It was saying I would have a 6 percent penalty on the overage and that I should try to withdraw it, which I cannot do. My 1099-r says $6501.

[Anonymous]

Anonymous wrote:

Anonymous wrote:What do you mean the IRS is saying you over payed? There are no limits on Roth conversions, you just need to pay taxes on the amounts over the contribution limit (which forms your after tax basis). Did you log the $6500.94 as the contribution on your 8606? $6500 should be your contribution, 6500.94 should be the conversion amounts, and the amount over $6500 forms will require taxes paid in the amount of 94 cents.

I admit the 8606 is confusing but that is how it should play out.

Agree something does not make sense with OP. A Backdoor Roth contribution literally takes about 10 minutes to do if you know what you’re doing. If you convert it right away, you won’t have any earnings. And if you wait, yes you may have earned a few cents/dollars. So you just pay tax on the few dollars when you convert…not a big deal. Remember a few pennies is not going to matter because you round to the nearest dollar.

I converted it literally the next day. It was $.94

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What do you mean the IRS is saying you over payed? There are no limits on Roth conversions, you just need to pay taxes on the amounts over the contribution limit (which forms your after tax basis). Did you log the $6500.94 as the contribution on your 8606? $6500 should be your contribution, 6500.94 should be the conversion amounts, and the amount over $6500 forms will require taxes paid in the amount of 94 cents.

OP we aren’t saying anything is wrong with the actual conversion. We are saying you are inputting the numbers incorrectly for tax filing purposes.

How were you told you over contributed by the IRS?

I admit the 8606 is confusing but that is how it should play out.

Agree something does not make sense with OP. A Backdoor Roth contribution literally takes about 10 minutes to do if you know what you’re doing. If you convert it right away, you won’t have any earnings. And if you wait, yes you may have earned a few cents/dollars. So you just pay tax on the few dollars when you convert…not a big deal. Remember a few pennies is not going to matter because you round to the nearest dollar.

I converted it literally the next day. It was $.94

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What do you mean the IRS is saying you over payed? There are no limits on Roth conversions, you just need to pay taxes on the amounts over the contribution limit (which forms your after tax basis). Did you log the $6500.94 as the contribution on your 8606? $6500 should be your contribution, 6500.94 should be the conversion amounts, and the amount over $6500 forms will require taxes paid in the amount of 94 cents.

I admit the 8606 is confusing but that is how it should play out.

Agree something does not make sense with OP. A Backdoor Roth contribution literally takes about 10 minutes to do if you know what you’re doing. If you convert it right away, you won’t have any earnings. And if you wait, yes you may have earned a few cents/dollars. So you just pay tax on the few dollars when you convert…not a big deal. Remember a few pennies is not going to matter because you round to the nearest dollar.

I converted it literally the next day. It was $.94

OP we aren’t saying anything is wrong with the actual conversion. We are saying you are inputting the numbers incorrectly for tax filing purposes.

How were you told you over contributed by the IRS?

[Anonymous]

Anonymous wrote:I am using TurboTax and cannot find figure out how to do it. But I will put in that I contributed 6500 and converted 6501. It was saying I would have a 6 percent penalty on the overage and that I should try to withdraw it, which I cannot do. My 1099-r says $6501.

Are you listing the $6501 in the conversion field or the distribution field? The answer to q1 should be 6500, Q2 should be 0, q4 and q5 should be dependent on the timing of the contribution, q6 and 7 should be 0, q8 should be 6501, q11 should be 6500. Move that to line 17. Line 18 should be $1.

TurboTax makes the form a bit more confusing than necessary IMO. See if you can open up the 8606 and see where your answers are being input on the form.

[Anonymous]

Below is a good financial blog on how to do the Backdoor Roth contribution and how to report it on your taxes.


https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What do you mean the IRS is saying you over payed? There are no limits on Roth conversions, you just need to pay taxes on the amounts over the contribution limit (which forms your after tax basis). Did you log the $6500.94 as the contribution on your 8606? $6500 should be your contribution, 6500.94 should be the conversion amounts, and the amount over $6500 forms will require taxes paid in the amount of 94 cents.

I admit the 8606 is confusing but that is how it should play out.

Agree something does not make sense with OP. A Backdoor Roth contribution literally takes about 10 minutes to do if you know what you’re doing. If you convert it right away, you won’t have any earnings. And if you wait, yes you may have earned a few cents/dollars. So you just pay tax on the few dollars when you convert…not a big deal. Remember a few pennies is not going to matter because you round to the nearest dollar.

I converted it literally the next day. It was $.94

OP we aren’t saying anything is wrong with the actual conversion. We are saying you are inputting the numbers incorrectly for tax filing purposes.

How were you told you over contributed by the IRS?

Sorry not IRS, TurboTax. I will try to tackle this again when I get back from spring break.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What do you mean the IRS is saying you over payed? There are no limits on Roth conversions, you just need to pay taxes on the amounts over the contribution limit (which forms your after tax basis). Did you log the $6500.94 as the contribution on your 8606? $6500 should be your contribution, 6500.94 should be the conversion amounts, and the amount over $6500 forms will require taxes paid in the amount of 94 cents.

I admit the 8606 is confusing but that is how it should play out.

Agree something does not make sense with OP. A Backdoor Roth contribution literally takes about 10 minutes to do if you know what you’re doing. If you convert it right away, you won’t have any earnings. And if you wait, yes you may have earned a few cents/dollars. So you just pay tax on the few dollars when you convert…not a big deal. Remember a few pennies is not going to matter because you round to the nearest dollar.

I converted it literally the next day. It was $.94

OP we aren’t saying anything is wrong with the actual conversion. We are saying you are inputting the numbers incorrectly for tax filing purposes.

How were you told you over contributed by the IRS?

Sorry not IRS, TurboTax. I will try to tackle this again when I get back from spring break.

Jeez…big difference. I think that was done on purpose.