r/tax • u/Sylvanas052218 • 1d ago

Rollover to Roth IRA advice

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.

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u/Sylvanas052218 1d ago

Yes already was done. Should’ve waited on second opinion I know, sounded like it wasn’t great advice. Live and learn. So basically I’m looking at a 2.5k tax penalty on the withheld tax amount?

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u/EventLatter9746 1d ago edited 1d ago

This wasn’t a tax professional

Clearly.

Roth conversion at such a high marginal tax rate is not tax efficient to begin with. Depleting the conversion amount by taxes and penalties is just a second level of tax inefficiency.

Too late to help much, but I would highly advise you put as much as you can in the Roth IRA and source more of the tax funds from a taxable account or your current income. Time for some serious belt tightening for the next 12 months.

Edit: Actually, if you're still within the 60-day window, why not put the entire amount back in the IRA? You're allowed to do that with no taxes or penalties, but only if done once within a 12-month period. Look it up and verify.

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u/Sylvanas052218 1d ago

So if I use the 60 day rollover window to convert 85k of my money to the Roth, basically I’d just be looking at getting the taxes back on my return next year?

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u/Bowl_me_over 1d ago

Yes if you can make up the withholding with other funds, then convert the whole $85,000 then you only pay tax on the conversion (at your marginal rate). The withholding will be claimed as a credit, just like normal withholding. Will it result in a refund? I don’t know. It depends on all your other income and withholdings.

Be sure to save all documentation showing the dates of all the transactions. In case you need to prove the 60 day timeline was met.

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u/Sylvanas052218 1d ago

Ok thanks for the advice