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Message
Paying taxes on a 401K in plan Roth IRA conversion. (converting stock to Roth)
Posted on 2/20/13 at 10:15 am
Posted on 2/20/13 at 10:15 am
Did this to diversify a little bit and did not realize I would have to pay taxes on it if I did not pull the money out. I'm now told I cannot pull the money out even if I wanted to. (Yes I should have researched it more). Is there anyway to spread the taxes out on this over a few years or not pay them at all (legally of course). Also can someone tell me what I can expect the taxes to be on this, amount is 25K.
This post was edited on 2/20/13 at 10:16 am
1
Posted on 2/20/13 at 10:35 am to BOSCEAUX
Wait, what?
You are having to pay taxes on converting your Roth 401k to a standard Roth?
You mean on the whole amount?
Because the only post tax contributions are your own.
Employer contributions are pre tax and you'll have to pay taxes on that in the conversion.
But only the employer contribution. Not your own. As I understand it.
You are having to pay taxes on converting your Roth 401k to a standard Roth?
You mean on the whole amount?
Because the only post tax contributions are your own.
Employer contributions are pre tax and you'll have to pay taxes on that in the conversion.
But only the employer contribution. Not your own. As I understand it.
Posted on 2/20/13 at 10:39 am to Siderophore
To answer your question though, the taxes would be the same as that much of an increase in income.
So if you make 50k, and you have a taxable conversion of 25k, you'll pay taxes April 2014 as if you made 75k.
If it is an old 401k that is currently not in service, there is no reason (and likely tax preferable) why you can't spread it out by partially converting over a few years.
(If I misread and you put it in a standard 401k, them yes, you have to pay taxes on it all, under the same rules as above.)
So if you make 50k, and you have a taxable conversion of 25k, you'll pay taxes April 2014 as if you made 75k.
If it is an old 401k that is currently not in service, there is no reason (and likely tax preferable) why you can't spread it out by partially converting over a few years.
(If I misread and you put it in a standard 401k, them yes, you have to pay taxes on it all, under the same rules as above.)
This post was edited on 2/20/13 at 10:42 am
Posted on 2/20/13 at 10:48 am to Siderophore
It is a standard 401k that I converted some of my company stock shares into a Roth IRA. I was just under the impression that I would not have to pay taxes on it unless I pulled it out and that I could pull all or some of it out if I wanted to.
Posted on 2/20/13 at 10:51 am to BOSCEAUX
To summarize I think I fricked myself and will owe money for the first time ever.
Posted on 2/20/13 at 10:54 am to BOSCEAUX
Pretty much.
Now if you put it in a traditional IRA you wouldn't have had taxes.
Now if you put it in a traditional IRA you wouldn't have had taxes.
Posted on 2/20/13 at 10:58 am to Siderophore
One more question. If I pay taxes on this shouldn't the money be mine free and clear to do with as I please. I don't understand why I'm being told I can't pull it out if I choose to. All other after tax accounts you can pull cash out of.
Posted on 2/20/13 at 11:13 am to BOSCEAUX
That is the big benefit of the Roth.
You can pull your contribution (what you paid taxes on) no questions asked and no taxes paid.
However, as it is a conversion rather than a direct contribution there *might* be a 5 year seasoning period.
The earnings it makes are also tax free if it is a qualified distribution. You'll only pay taxes/penalties if you are pulling earnings for non qualified distributions.
IMO the best reservoir for your 6+ months of expenses is a Roth.
You can pull your contribution (what you paid taxes on) no questions asked and no taxes paid.
However, as it is a conversion rather than a direct contribution there *might* be a 5 year seasoning period.
The earnings it makes are also tax free if it is a qualified distribution. You'll only pay taxes/penalties if you are pulling earnings for non qualified distributions.
IMO the best reservoir for your 6+ months of expenses is a Roth.
This post was edited on 2/20/13 at 11:18 am
Posted on 2/20/13 at 11:16 am to BOSCEAUX
With a traditional IRA or 401, you pay taxes when you withdraw but pay no tax when you contribute.
With a Roth it's the other way around - pay tax when you contribute, pay no tax when you withdraw.
To simplify things a bit it doesn't really matter much either way.
With a Roth it's the other way around - pay tax when you contribute, pay no tax when you withdraw.
To simplify things a bit it doesn't really matter much either way.
Posted on 2/20/13 at 12:37 pm to Siderophore
Thanks for the info guys.
Posted on 2/20/13 at 12:38 pm to Siderophore
Is there a way to spread the tax hit out over a few years?
Posted on 2/20/13 at 1:59 pm to BOSCEAUX
Bump
Posted on 2/20/13 at 2:59 pm to BOSCEAUX
I don't think so anymore.
Not after the fact when you made the distribution.
Your only hope is maybe if it was distrubuted within the past 60 days, take it out of the Roth and into an IRA but I don't know if it is possible for the amounts we are talking here even then.
Probably best leaving it in the Roth and tightening the belt for the tax hit. The 401k servicer probably withheld 20% for tax purposes anyway.
And learn your lesson of why you shouldn't do ANYTHING with your nest egg before fully researching the scenario and the pros and cons of the decision.
Not after the fact when you made the distribution.
Your only hope is maybe if it was distrubuted within the past 60 days, take it out of the Roth and into an IRA but I don't know if it is possible for the amounts we are talking here even then.
Probably best leaving it in the Roth and tightening the belt for the tax hit. The 401k servicer probably withheld 20% for tax purposes anyway.
And learn your lesson of why you shouldn't do ANYTHING with your nest egg before fully researching the scenario and the pros and cons of the decision.
Posted on 2/20/13 at 4:05 pm to BOSCEAUX
Is this with ING? I did the same thing and also thought you could withdraw it if you wanted. I found out after I did the conversion that you can only make a "hardship withdrawal." I was under the impression that mine was earnings from my 401k and that the conversion was tax free. I wasn't able to convert any of my previous pre-tax contributions. I guess I need to look into mine and make sure.
Posted on 2/20/13 at 5:11 pm to JonTheTigerFan
Yep. ING through Exxon
This post was edited on 2/20/13 at 5:16 pm
Posted on 2/20/13 at 5:50 pm to BOSCEAUX
Same here.
Posted on 2/20/13 at 5:58 pm to JonTheTigerFan
The explanation of what you could do with the conversion was extremely confusing. I'm calling them Monday to piss and moan. Maybe they will at least change the wording so the same thing doesn't happen to other people. I think we are 2 of many this happened to.
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