457b to IRA indirect conversion

Submitted by Mike Johnson on Wed, 2016-03-16 20:35

Hello,

I withdrew all my former employer 457b funds, paid the 20% tax, was going to invest in real estate project, but that didn’t happen. I am within my 60 day window period. I would like to put half of it in a Roth.

My question is let say the total was $50k (minus $10k taxes) leaving me $40k in cash. I want to rollover $10k. Would $40k be considered taxable for 2016? And would the $10k not be taxable since it is reinvested?

Thanks



Submitted by Alan - IRA critic on Wed, 2016-03-16 23:35

  • The taxable amount is 50,000 less any amount you roll into a traditional IRA. This is the simplest  way to summarize a situation that presents various combinations of actions.
  • Amounts you roll into a Roth IRA are therefore taxable. You would also face a 10% penalty if you are under 59.5 on the taxable portion. You can replace the withheld portion with other funds you may have if you roll the withheld amount into a traditional IRA.
  • If you want to end up with 25k in a TIRA and 25k in a Roth IRA by replacing the withheld amount in the 60 day rollover, you will be taxed on only the 25k rolled into the Roth.
  • If you do not replace the withheld amount and want to put 50% of what you received in the Roth IRA, that would be 20k in the Roth and 20k in the TIRA. With this combination, you would be taxed on 30k (Roth plus withholding).

Add new comment

Log in or register to post comments