I’m looking at doing a Roth conversion of a portion of my pre-tax 401k. I’m probably going to do 100k in 2020.

I want to withhold my taxes out of the 100k ( let’s say 25k). The paperwork at the custodian(Transamerica) states that they will not withhold taxes on the conversion.

When I spoke to Transamerica, they told me that I could subsequently transfer my converted Roth to my Roth IRA at a different custodian. From there I could do a forced withholding and send the 25k to the IRS.

Anyways, I called back to confirm and the next agent said it wasn’t possible to transfer to my Roth 401k outside of Transamerica. So now I’ve got one saying I can- one saying I can’t. So I call back a third time and the agent assures me that I can move the money to an outside IRA after the conversion. I’ve got 2 yes and 1 no.

I don’t want to proceed with this irreversible transaction without the ability to withhold taxes. Do I have recourse against Transamerica if they decide to change their decision to allow me roll to an outside Roth on me after I submit the paperwork?

This post was edited on 12/30/19 at 1:21 pm

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Posted by LSUFanHouston

NOLA

Member since Jul 2009

37084 posts

Posted on 12/30/19 at 2:02 pm to AugustaTiger

Maybe they are telling you that they won't support a transfer from a 401K directly to a Roth IRA. They want you to roll the 401K money to a Rollover IRA first, and then convert from that Rollover IRA to a Roth IRA.

In that scenerio, the first transaction (the rollover) is a tax-free event, so it would make sense Transamerica is telling you that you can't withhold.

The second transaction (from Traditional / Rollover IRA to Roth IRA) is where you would have the withholding occur, as there is where the income is.

All of this assumes you aren't still working for the company that sponsored the 401K.

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