Taxes accidentally withheld from a conversion from 401(k) to Roth IRA
Hello,
Taxes were inadvertently withheld from a conversion from a 401(k) to a Roth IRA. If they want to use personal funds to gross up and convert the full amount, do they need to do that when the after-tax amount is deposited into the Roth IRA, or can they later deposit the amount withheld for taxes as long as it’s within 60 days?
Thank you!
Permalink Submitted by Alan - IRA critic on Wed, 2025-01-08 11:21
It can be done anytime within the 60 day period following the distribution date from the 401k.
Note that if the rollover contribution to the Roth IRA was done in December, the 5498 for 2024 will only show the net amount converted in 2024. If the withheld amount was deposited to the Roth IRA as a rollover contribution in 2025, that amount will be reported on a 2025 5498, so any 5 year holding periods will start a year apart should a Roth IRA distribution of these funds be made.
A Roth rollover from a 401k is technically not a conversion, but rather a qualified rollover contribution. When replacing the withholding the Roth custodian should be told that this is a rollover contribution rather than a conversion contribution.
The full gross distribution and rollover should be reported on Form 1040, lines 5a and 5b for the year it was distributed.
Permalink Submitted by Sarah Murphy on Wed, 2025-01-08 17:13
Thank you Alan! Good to know about the separate 5-year holding periods. She’s over 59 1/2 though, so she doesn’t need to worry about the 5-year holding period on conversions. I’ll be sure to let her know that she should tell her Roth IRA custodian it’s a rollover contribution.
Thanks again!