Roth Conversion – taxes paid from IRA assets?
Good Morning,
I am looking for assistance with the following fact pattern:
Can an individual that elected to have taxes w/h on an IRA conversion later (within 60 days) rollover the previous amount that was witheld for taxes? Later when filing taxes get a refund?
Thank you in advance,
Brian
Permalink Submitted by Alan Spross on Wed, 2012-09-19 19:56
Yes, except that there will be two conversions rather than one because the Roth will not receive the funds at the same time.
Example:
1) Order a 10,000 conversion less 10% withheld for taxes
2) 9,000 goes to the Roth and 1,000 to the IRS
3) Sometime within the next 60 days taxpayer rolls 1,000 to the Roth IRA as an additional conversion
4) In total there are now 10,000 in Roth conversions for the tax year.
There will be 10,000 in taxable income due to the distribution either way. The difference with the additional rollover is that 10,000 goes into the Roth rather than 9,000.
This does not change the fact that 10,000 was distributed and is taxable, but it would eliminate the 10% penalty on the 1,000 that was withheld by completing a rollover of that 1,000 to a Roth. There is no penalty on Roth conversions.