Traditional 401(k) to Roth IRA
40 year old plans to rollover $60,000 traditional 401(k) to a new Roth IRA. 20% to be withheld for taxes. This 20% ($12,000) would be subject to the 10% penalty, correct? Once in the Roth and assuming no future contributions to the Roth, the $48,000 can be distributed without the 10% penalty tax after 5 years, correct? Prior to 5 years there would be the penalty tax, correct?
Earnings would have the penalty tax until 59 1/2, correct?
Permalink Submitted by David Mertz on Thu, 2024-02-22 20:18
All correct.
Permalink Submitted by Alan - IRA critic on Thu, 2024-02-22 20:19
Yes, that’s correct. However, it would be far better to avoid withholding on the distribution and pay the taxes from other funds by either withholding from other sources or paying quarterly estimates. Otherwise the 12000 will be subject to both tax and penalty and also will deplete the retirement accounts by that amount. By a “new IRA” I assume you meant the first Roth IRA, not just a new account when there was an existing Roth IRA.
Permalink Submitted by Robert Smith on Thu, 2024-02-22 20:33
Yes, first Roth IRA.