401(k) to Roth IRA Conversion Deadlines
Hi Ed and team –
Thank you for the great work you do. Indispensable.
Since there have been some filing deadlines changing in 2021 for tax year 2020, I just need some clarity. If a client wants to convert part or all of his 401(k) to a Roth IRA (presuming plan allows him to do so, etc.) what is the deadline for completing the conversion for ‘tax year 2020’? Also, what would be the deadline for ‘tax year’ 2021?
Thanks
Bill Leonard
Permalink Submitted by Alan - IRA critic on Wed, 2021-04-28 23:25
Conversions and qualified rollover contributions (401k directly to Roth IRA) must be done by the end of the current year. Therefore, any such direct rollovers done this year can only be reported on a 2021 1099R and on the participant’s 2021 return. Conversions do not have extended transaction dates like regular IRA contributions, so the filing date extension to 5/17 only affected regular IRA contribution deadlines, not the conversion deadline.
In addition, unless the 401k is small, the client may not want to roll the entire balance to a Roth IRA and incur a large taxable income. A 401k plan is only required to offer ONE direct rollover, but most will provide more than that, which allows the client to split the direct rollover to two different destination IRA accounts. If the event this becomes an problem, the client can direct the entire balance to the TIRA, and then convert from the TIRA to the Roth in optimal amounts.
In short, deadline for a 2020 Roth rollover is over, and the 2021 deadline is 12/31/2021. I suggest avoiding doing transaction after mid December since they are often not completed in time.