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For doing backdoor Roth conversion I deposited $6000 into my traditional IRA and then converted it a few days later to a Roth IRA account. The money unfortunately earned a little bit of growth when it was in the traditional account and I ended up moving more than $6k to Roth.

What should I do now? Will I just be paying the tax on the $1 that it earned or do I need to pay a penalty too?

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There is no penalty or limit on conversions, ever.
You can convert a million (if you manage to have in your IRA, which is hard to do), and only pay taxes for it, no penalty, so you are clear of penalty for sure.

If your contribution was tax-deductible, you will have to pay taxes on the whole amount, and can deduct the contribution, so yes, you'll end up owing taxes for one dollar. If your conversion was non-deductible, but that part converts tax-free, so you again end with owing taxes on one dollar.

Aside from the effort of typing the numbers in, there is nothing to worry about, and the dollar might even round away at the end (only full dollar amounts are considered for tax calculation).
Either way, a taxed dollar is still money, so be happy and take it.

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  • It sounds like he put more in the destination account than he took out of the source account. – Loren Pechtel May 4 at 1:50
  • @LorenPechtel: Reread the question. He put more in the destination account than he put in the source account, because "The money unfortunately earned a little bit of growth when it was in the traditional account". – Ben Voigt May 4 at 16:50
  • @BenVoigt It doesn't really matter why, just that he did. – Loren Pechtel May 4 at 17:47
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    @LorenPechtel but he *didn't*. Read the text. It grew before it was converted. – Aganju May 4 at 21:19

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