but why COBRA over ACA?
Good question. Path of least resistance and least effort, along with fear of the unknown. My wife is a doctor snob (probably a good thing actually) so I don't want to upset that apple cart.
but why COBRA over ACA?
Has anyone done this?
I was told I could convert, withhold the taxes and rollover that amount into the tIRA (where the funds came from) but not into the Roth.
Very confused.
Vanguard has no option to withhold taxes on tIRA -> ROTH conversions. (I just did one).
I would think you could then just do a 2nd Roth Conversion from the tIRA to the Roth in the same amount, no?
You would probably run into this rule...
https://www.irs.gov/retirement-plan...vers-of-retirement-plan-and-ira-distributions
You generally cannot make more than one rollover from the same IRA within a 1-year period. You also cannot make a rollover during this 1-year period from the IRA to which the distribution was rolled over.
Beginning after January 1, 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own.
The one-per year limit does not apply to:
rollovers from traditional IRAs to Roth IRAs (conversions)
trustee-to-trustee transfers to another IRA
IRA-to-plan rollovers
plan-to-IRA rollovers
plan-to-plan rollovers
Once this rule takes effect, the tax consequences are:
you must include in gross income any previously untaxed amounts distributed from an IRA if you made an IRA-to-IRA rollover (other than a rollover from a traditional IRA to a Roth IRA) in the preceding 12 months, and
you may be subject to the 10% early withdrawal tax on the amount you include in gross income.
See IRA One-Rollover-Per-Year Rule for more on this limit.
the 1 per year does not apply to Roth Conversions.
Vanguard has no option to withhold taxes on tIRA -> ROTH conversions. (I just did one).
Withholding for federal and state taxes isn't available for Roth conversions requested on vanguard.com. You must elect not to have withholding applied to proceed. Call us at 877-662-7447 if you need information about requesting a Roth conversion for which you would like withholding. You must check the box below before you can continue.
Does the 80% underpayment penalty apply to only the conversion or just your whole taxes that you file.
I'm expecting several thousand overpayment federal, and wanted to do a conversion to match the $3-4000 in feds and less so in CA State.
The underpayment penalty applies to the portion of the taxes that were not paid in a timely fashion, but only if you actually owe a penalty, which is pretty easy to prevent.
First, figure out the safe harbor based on last year's taxes -- look at your 2019 tax return and locate your AGI and your total tax. If your AGI is over $150K, then take the total tax and multiply by 1.1. If your AGI is less than $150K, just take your total tax.
Next, look at your 2020 withholding from your most recent paycheck stub. Is this amount greater than the safe harbor you just calculated? If so, there will be no Federal penalty, no matter how much you convert from your Roth IRA.
If you are not already in a safe harbor, then in early January, take a look at your withholding on your final pay stub for the year. Subtract the 2020 withholding from your safe harbor amount and pay that difference to the IRS on January 15. You can do it online from this page: https://www.irs.gov/payments
If you use a safe harbor, then you will still owe income tax on the Roth IRA conversion, but it will just be figured on your 2020 tax return and there will be no penalty.
The exception is if you had unusually high income in 2019, with unusually high taxes, so reaching the safe harbor would require you to pay much more than you'd likely end up owing in 2020. If that's the case, then the easiest thing to do is just pay the approximate tax on the conversion on January 15. You can figure it based on your filing status and AGI, but for most people, paying 20% would be enough to eliminate the penalty.
In either case, if you make an estimated tax payment on January 15, you may have to fill out Form 2210 in order to show the IRS that you had a lot of income in Q4 and therefore don't owe a penalty.
You can do the same for CA, but state tax rates are a lot lower, and the penalties are a lot smaller. If you're married, then probably most of your conversion is in the 6% or 8% brackets, maybe reaching into the 9.3% bracket. You could make a payment of 7% and be pretty safe.
Does the 80% underpayment penalty apply to only the conversion or just your whole taxes that you file.
I'm expecting several thousand overpayment federal, and wanted to do a conversion to match the $3-4000 in feds and less so in CA State.
Thanks, there's no current AGI limit for tIRA -> rIRA conversions right?
Vanguard has no option to withhold taxes on tIRA -> ROTH conversions. (I just did one).
Not true... you can but you have to call in... you just can't do it online. I suspect that they do that so they can counsel you that it is better to pay the tax from taxable account money.
From their website if you are doing a Roth conversion and want withholding:
We have Vanguard regular mutual fund accounts (old style) and not a Brokerage Account (new style). We can do Roth conversions from our Rollover IRAs to our Roths, and we can select the tax withholding percentages online without having to call and get someone to assist with the transaction. I called yesterday to verify this was still the case. Do you have a Brokerage account? ....
Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own (Announcement 2014-15 and Announcement 2014-32). The limit will apply by aggregating all of an individual’s IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.
- Trustee-to-trustee transfers between IRAs are not limited
- Rollovers from traditional to Roth IRAs ("conversions") are not limited
...Not sure about the part about withholding being considered as distributed throughout the year.
That is well established. For the purpose of calculating underpayment penalties estimated payments are recognized when paid and withholdings are presumed to be evenly spread throught the year.
...For withheld federal income tax..., you are considered to have paid one-fourth of these amounts on each payment due date unless you can show otherwise. ...
Yes fritz, mine is a brokerage account. It's odd/interesting that mutual fund accounts are different.
While I like your strategy of Roth conversion with withholding for taxes and they deposit withheld within 60 days. I initially thought that there would be a constraint that rollover contributions can only be done once every 12 months, but found that constraint doesn't apply to Roth rollovers.
The part about replacing the withholding I think is covered here:
https://www.irs.gov/retirement-plan...vers-of-retirement-plan-and-ira-distributions
More info on the above here, although slightly out of date:
https://finance.zacks.com/funds-out-ira-can-repay-before-year-out-penalty-6981.html
Not sure about the part about withholding being considered as distributed throughout the year.