A few years ago I began doing backdoor Roth contributions. Up until that point I had done traditional Roth contributions only. I contacted my IRA account holder Vanguard and asked some questions about the process. I was told that the existing (traditional) IRA account would have to get completely converted to a Roth. They said I could not make a $6000 contribution to it and then roll only that amount over.
I stated I didn't want to pay the tax hit on the whole thing. I only wanted to do current and future year contributions this way. Vanguard's solution was to roll my existing traditional IRA out of their system entirely and into my traditional 401k account. Which I did. Then my traditional IRA account had a balance of $0.00. Finally, I made a traditional contribution of the $6,000 and rolled the entire account over to a Roth account. I've done this a few years in a row now.
Oddly in my conversations with Vanguard they stated that I couldn't roll my IRA to another provider. They said I literally could not own ANY traditional IRA with any balance and do a Roth conversion. This made no sense to me but I didn't have any other IRAs so I didn't worry about it.
Fast forward three years and I've discovered my credit union has a savings account tagged as an IRA in my name. It has only $40 in it and I didn't even remember it was there. I got a "fair market value" letter for tax purposes this year. There's nothing to file as it made no interest and had no distributions. The account has been there 10+ years.
Was what Vanguard told me correct? If so was I not allowed to do a Roth conversion? What should I do with this account? It's literally only $40 so I don't care if the account goes away or if I lose what is there. Just don't want to be in violation on all the conversions I have done.