Value of your Traditional IRA as of Dec 31 2023

Forum|Forum|2 years ago
March 2, 2024
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Hello,

Each year I convert the max IRA contribution and convert it to a Roth. In the process of doing so, my traditional IRA has accumulated interest. Last year the interest was 0.40 and this year the fair market value reported in form 5498 is 1.31. I suppose that I need to now enter this amount as Value of your traditional IRA as of Dec 31.

Question: Why is this then showing up later in the summary as a $1 taxable distribution? The $1.31 is still in the traditional IRA.

Thanks in advance

Best answer by dmertz

TurboTax leaves lines 6 through 12 blank when using Worksheet 1-1 from IRS Pub 590-B due to making traditional IRA contributions and Roth conversions in the same year, indicated by asterisks next to lines 13 and 15.

$1 is taxable due to the pro rata calculation that divides the amount converted by the amount converted plus the $1 year-end value. For example, if your contribution and conversion was for $6,500, the nontaxable amount is $6,500 * $6,500 / $6,501 = $6,499.

dmertz

Employee

This is the correct result of the pro rata calculation on Form 8606. The $1 of your basis that was not permitted to be applied to your Roth conversion remains in your traditional IRAs to be applied to future traditional IRA distributions and Roth conversions. The $1 on line 14 of this Form 8606 will carry forward to line 2 of the next Form 8606 that you file.

Jo62Author

Thanks for the answer. Sorry there was an error in my description above. I meant to say that I contribute the max amount allowed to the Traditional IRA and then convert the same amount to a Roth within a few days. This results in the accumulation of interest in the Traditional IRA while I'm waiting for the cash to be available for the conversion. I do not convert the interest over to the Roth.

I do not understand why the $1 is considered a taxable distribution this year since the money is in the Traditional IRA. I would have expected to pay taxes on it if I take a distribution but it shows up on line 4b IRA taxable amount.