Indirect 401(k) rollover to Roth
A 67 year old retired client took a $125,000 distribution for his traditional 401(k) to fill up his 22% bracket seven days ago and has now decided that he should have done a Roth conversion. Is he able to deposit these funds into his Roth IRA under the 60 day rule by year end to have a 2024 Roth conversion. Thank you
Permalink Submitted by Alan - IRA critic on Fri, 2024-12-20 11:43
Yes, that could be done, but because 20% withholding was taken from the distribution, in order to have a full conversion, the client would have to come up with the amount withheld from the distribution and add it to the rollover of the amount he actually received (80% of the gross distribution). He has 60 days to complete this rollover, so into mid February.
It is also allowable for him to roll over part of the distribution now and the rest of it later on up to the 60 day deadline. If so, this would all be reported on the 2024 return.
Of course, he probably should have done a direct rollover to a Roth IRA in the first place, as that would have avoided the withholding issue.