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When to pay taxes on 401k--> IRA--> Roth IRA? At time of rollover or year end?

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  • When to pay taxes on 401k--> IRA--> Roth IRA? At time of rollover or year end?

    I just finished residency and was able to contribute some money to the hospitals 401k plan. Given this will be a low tax year (< 1/2 yr as an attending), I'd like to move that into my Roth IRA. I know the first step is 401k--> Traditional IRA and then Traditional IRA--> Roth IRA. This will result in a taxable event for 2018 but I wasn't sure when I am supposed to pay the taxes. Does it have to be at the time of the transaction (or at least in the same quarter) or can it be at year end at tax time?

    I'd like to move the money now (~70k) while I have some free time and to continue simplifying my life, but money is a little short right now to pay taxes on the 70k if it needs to be done now. If it doesn't need to be paid until year end (April 2019 I suppose), then it wouldn't be a problem and I could easily afford it. And if it is absolutely required to be paid in the same quarter as the transaction, is the simplest way to just wait until the fourth quarter (which I believe starts 9/1) which would then allow me to pay in 2019? Thanks.

  • #2
    It has been ten years since you needed to rollover a qualified plan to a tIRA before doing a Roth conversion. You can do a direct rollover from a qualified plan to a Roth IRA.

    There are two safe harbor rules that apply. Your total withholding + estimated tax payments must be the lesser of 90% of your current year's tax lisbily or 100% (110% if AGI > $150K) of your previous year's tax liability.

    If you pay this with estimated tax payments, you need to pay the amount for the quarter the tax liability was incurred. You will have to use the annualized method on Form 2210.

    The better method is to increase your withholding from now until the end of this year. Withholding is treated as having been withheld equally thruout the year.

    If you use either safe harbor, the balance will be due by your tax filing deadline.


    • #3
      you can do it direct.

      if you are W2 increase your withholding to cover it.

      i would NOT convert 70K to an rIRA.

      i know you are in a lower bracket, but by no means will you be in the lowest you could be (ie early retirement and roth conversions)