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Roth Conversion

dmclone

dmclone

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Oct 20, 2006
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My wife has an old IRA as well as a Roth IRA with the same large broker. I'm thinking of doing a Roth conversion on this IRA. I'd like to pay these taxes with some funds I have in a non retirement account. How does this work? Do I just send the government a check? Will waiting until the 4th quarter make it easier?
 
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TD Ameritrade is my experience. You get to do it online and choose your withhold amounts for State and Federal withholding. If I would have chosen $0 to with with hold it would have been added to my tax liability on my 22 returns. I did this in December of 22 and received a healthy refund on my tax returns. I figured the government holding my money with zero interest would be a better deal than watch it shrink or break even in the stock market for 3 months. The three reasons I did the conversion. It looks as though I might be in a higher tax bracket when I retire and my portfolio value was down as well as I was going to have a healthy tax bill for my 2022 returns. I converted 10% of my regular IRA to my ROTH. I have retirement horizon of less than 5 years, I guess that is the 4th factor of consideration. Generally speaking, I dont think a conversion would be wise to do a with a retirement date more than 10 years away. There are exceptions to every circumstance/guideline.
 
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mkadl said:
TD Ameritrade is my experience. You get to do it online and choose your withhold amounts for State and Federal withholding. If I would have chosen $0 to with with hold it would have been added to my tax liability on my 22 returns. I did this in December of 22 and received a healthy refund on my tax returns. I figured the government holding my money with zero interest would be a better deal than watch it shrink or break even in the stock market for 3 months. The three reasons I did the conversion. It looks as though I might be in a higher tax bracket when I retire and my portfolio value was down as well as I was going to have a healthy tax bill for my 2022 returns. I converted 10% of my regular IRA to my ROTH. I have retirement horizon of less than 5 years, I guess that is the 4th factor of consideration. Generally speaking, I dont think a conversion would be wise to do a with a retirement date more than 10 years away. There are exceptions to every circumstance/guideline.
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Good info. I'm about 7 years away. I was hoping to convert just enough to not go over the 24% tax bracket. I anticipate this will also help me bridge the 5 year gap before I move to Medicare by showing a lower income to get ACA at a discount.

Another reason I don't want the taxes taken out of the IRA is because I would be penalized for an early withdrawal. At least this is the way I read it.
 
I guess my grandma did the conversion. She said you do have to marry the right one though.

Yes bad joke, but only those with ancestors named Roth can make it (although they pronounced it differently)
 
You can have the place you are doing the conversion at send the funds in for the taxes also. That's what I did. Estimate it, have them send it in, and then save the forms till tax time next year.
 
brianhos said:
You can have the place you are doing the conversion at send the funds in for the taxes also. That's what I did. Estimate it, have them send it in, and then save the forms till tax time next year.
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I didn't see that option. The only option I saw was to have the taxes taken out of the IRA, which I would have been penalized by 10%, since I'm under 59 1/2. It sounds like most people do a 1040ES for the same quarter to avoid a penalty. This isn't something I've done before so I'll have to do more research,
 
dmclone said:
I didn't see that option. The only option I saw was to have the taxes taken out of the IRA, which I would have been penalized by 10%, since I'm under 59 1/2. It sounds like most people do a 1040ES for the same quarter to avoid a penalty. This isn't something I've done before so I'll have to do more research,
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I think if you are under a certain age you don't have the option to automatically take out the taxes.
 
brianhos said:
You can have the place you are doing the conversion at send the funds in for the taxes also. That's what I did. Estimate it, have them send it in, and then save the forms till tax time next year.
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Yes, that is what we did.
 
When I saw the subject line, I thought this could be about David Lee Roth.
I should have known better that it's tax season. My bad. Carry on!
 
dmclone said:
Good info. I'm about 7 years away. I was hoping to convert just enough to not go over the 24% tax bracket. I anticipate this will also help me bridge the 5 year gap before I move to Medicare by showing a lower income to get ACA at a discount.

Another reason I don't want the taxes taken out of the IRA is because I would be penalized for an early withdrawal. At least this is the way I read it.
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I get keeping income under limits to keep eligibility for other things, but why worry about staying under the next tax bracket?
 
Withholding taxes from the account will lower the amount you have going into the essentially tax free going forward Roth. If you have the funds in a taxable account, write the check and mail it in.
 
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dmclone said:
My wife has an old IRA as well as a Roth IRA with the same large broker. I'm thinking of doing a Roth conversion on this IRA. I'd like to pay these taxes with some funds I have in a non retirement account. How does this work? Do I just send the government a check? Will waiting until the 4th quarter make it easier?
Click to expand...

I have done a couple of Roth conversions. One year I made an estimated tax payment in December (1040-ES). The other time I didn't send any tax payment for it. I just let my typical overpayment of taxes from a W-2 job pay it. I ended up with a much smaller refund when I did that year's taxes.

Personally, I would not take money out of the conversion to pay taxes. My preference is to come up with tax money from other savings. I feel that is better because I don't want to over estimate the tax, which essentially converts IRA money into refund money.

If either of you have a W-2 job, consider adjusting your witholdings to take out extra money each paycheck. Tax payments are fungible, so it doesn't really matter who pays them.

Lastly, you might want to research the rules for when underpayment of taxes results in a penalty. You could skip the tax payment for now if you know you won't be penalized next April. You should be clear if your witholdings will add up to at least 90% of the total tax due this year, but do your own diligence.

H
 
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I have a similar question. I am fully vested in IPERS but don't know if I will remain in Iowa. If I moved to, say, Illinois and elected their state pension program, can I transfer my funds from IPERS to Illinois?
 
So if David Lee Roth was going through a conversion to the other gender, I would say that would not look good.
 
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Bader said:
I get keeping income under limits to keep eligibility for other things, but why worry about staying under the next tax bracket?
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Is this a trick question? Any income over $364k would be taxed at 32% instead of 24%. Is this not correct?
 
BigTurk said:
I have a similar question. I am fully vested in IPERS but don't know if I will remain in Iowa. If I moved to, say, Illinois and elected their state pension program, can I transfer my funds from IPERS to Illinois?
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No. IPERS money will stay with Iowa. You will still be able to access your funds in retirement. You can start building the Illinois pension in tandem with what you've already built in Iowa.
 
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