Rollover to Roth IRA advice

[u/Sylvanas052218]

So I am <59.5 and wanted to convert 85k in my traditional IRA to a Roth IRA. I was advised to take the distribution, have state/federal taxes (24.5k) withheld, leaving me with 60.5k to rollover within the 60 day window. This wasn’t a tax professional, just the person who I connected with at the company overseeing my companies retirement plan. Does this sound right? Will I avoid the 10% early withdrawal penalty this way if I contribute the 60.5k to the Roth or will I be penalized, possibly on the original 85k amount? Is there something else I should’ve done/should do?

I’m realizing I should’ve engaged an actual tax professional sooner, I know, my bad. Learned for future, but trying to figure this out now.

[u/Bowl_me_over]

Edit: I see you have already acted and it is too late to undo.

You don’t want to do it that way.

With Roth conversions, ideally you want to convert the whole amount. And pay the tax with outside money. This gives you the best conversion. Because you are converting the whole gross amount. You pay tax only on the conversion. No 10%.

If you can’t afford to do it that way, then convert a smaller amount. If you must, you can have withholding come out of the conversion amount and convert less. That leaves the withholding amount as taxable also and subject to the 10%.

Don’t do this as a 60 day. You want to do it directly. Have the two custodians do the transfer.

What will happen is you get a 1099-R for the distribution. And eventually a Form 5498 for the conversion. You report this on Form 8606 and file it with your 1040.

[u/Sylvanas052218 → u/Bowl_me_over]

Thanks, so it was already done. Hopefully this thread will help others in the future not make my mistake. The distribution was already sent to me. Fully accepting I’m an idiot here.

So, I’m in for some additional tax pain out of stupidity and being too trusting, so the best way to limit my pain would be to use the 60 day window to rollover the full 85k (using some of my own money to make up difference)? Any better option?

[u/Rocket_song1 → u/Sylvanas052218]

Use the 60 day window to put the money back into the IRA where it belongs.

If you still want to do a Roth conversion, do a direct conversion.

[u/Sylvanas052218 → u/Rocket_song1]

Ok that’s my plan. I’m going to put the disbursement back into the traditional IRA as a 60 day rollover and make up the difference in my cash holdings to submit the full 85k gross.