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Old 12-12-2020, 03:12 PM   #41
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Yes, I intend to do that next year when I pull plug. Won't be converting my 401K to IRA until April maybe June depending on how leaving company goes. Then, yes, I will just do a small roth conversion for the education.

As to the 59.5, I will not have any real reason when that day comes to play it to close so I will wait a week to account for leap years, pandemics or other calamties. It's 14 years away right now, what could possibly change by then?

Ok - Just be sure to do your small 'educational' conversion in a different/prior tax year than the larger conversions.

You will get feedback when you file your taxes (via your tax software) if any of your assumptions were wrong.

You really can't do this ahead of time because you don't know for sure how your custodian will code box 7 of your 1099-R.

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Old 12-12-2020, 04:23 PM   #42
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Originally Posted by gauss View Post
Ok - Just be sure to do your small 'educational' conversion in a different/prior tax year than the larger conversions.

You will get feedback when you file your taxes (via your tax software) if any of your assumptions were wrong.

You really can't do this ahead of time because you don't know for sure how your custodian will code box 7 of your 1099-R.

-gauss
I will be pulling plug next year at which point I will roll my 401K to a Vanguard IRA, but will not have tax room for any large conversions. So I will just do $500.00 Roth conversion for education. 2022 is 1st year I am thinking for larger conversion.

I use turbotax.
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Old 12-12-2020, 05:25 PM   #43
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Another option is to have taxes withheld from the conversion and then make a rollover contribution equal to the amount of the withholdings. So if you do a $10k conversion and have $2k withheld, the net of $8k ends up in your Roth and then you deposit $2k in your roth from taxable funds as a rollover contribution.

Either way, at the end of the day $10k comes out of your tIRA, $10k ends up in your Roth and $2k comes out of your taxable account and $2k is paid in estimated taxes/withholdings.

The advantage of the withholding route is that the IRS considers taxes withheld as paid evenly throughout the year when it comes to calculating underpayment penalties.
Does this pertain to your option?

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Rollover Frequency Limitations.
The IRS places limits on how often you can roll over money from a particular IRA. Once an IRA has been involved in a rollover, you can't initiate a rollover from that IRA for 12 months.
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Old 12-12-2020, 07:47 PM   #44
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Yes, there is the limitation on how often you can do it.
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Old 12-13-2020, 10:49 AM   #45
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So the real question is how does your IRA custodian interpret the law and generate the box 7 code.
Precisely what I was thinking when the 183/182 discussion was going on.

Usually they had me on production line kinds of programming tasks, but one time they had me on getting data on tax forms. I came across one of these "edge cases" as we liked to call them, but staffing, as it was, nobody could answer my question before the deadline. I remember programming it both ways and hard coding a boolean. In the end, nobody answered me before the print run, so the decision was made by a lowly programmer!
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Old 12-13-2020, 10:54 AM   #46
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Precisely what I was thinking when the 183/182 discussion was going on.

Usually they had me on production line kinds of programming tasks, but one time they had me on getting data on tax forms. I came across one of these "edge cases" as we liked to call them, but staffing, as it was, nobody could answer my question before the deadline. I remember programming it both ways and hard coding a boolean. In the end, nobody answered me before the print run, so the decision was made by a lowly programmer!
What did you decide?!

Geez, you bring back memories. I worked on too many projects where marketing couldn't make up their mind. We had secret files with obscure numbers we'd read in to enable features or characteristics.

If the product became popular enough, nerds would reverse engineer it. We had to put an end to that shoddy practice.
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Old 12-13-2020, 11:04 AM   #47
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I don't even remember what it was, just that the numbers were different if I interpreted the rules one way vs the other. Not a huge difference for anybody, but different.

As to shoddiness, I cringe when I see the nearly endless list of options when I type " about:config" in the browser address bar. But I fear we have gone on a tangent to a tangent, hehehe.

Back to gause's always excellent observations/suggestions, the idea to do a small trail run is a good one, and what I did back in my younger 59 1/2 days.
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Old 12-13-2020, 11:14 AM   #48
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Back to gause's always excellent observations/suggestions, the idea to do a small trail run is a good one, and what I did back in my younger 59 1/2 days.
Yeah, back on topic. Too much w*rk talk there for a second. I also want to give appreciation to gause's idea. Especially if you are early retired, doing just a little bit in the Roth not only gives you a nice trial, it also gets the 5 year Roth timer ticking.

Two years ago I converted just 100 to a Roth. From this I was able to trial and get used to:
  • Vanguard's procedures for conversion, including that question about withholding
  • Start my Roth timer
  • Seeing what forms I get from Vanguard at tax time
  • Entering the Roth on my tax program
  • Figuring out the taxable vs non-taxable math for my conversion. I have a basis in my tIRA
With just $100, none of this was life shattering should I have made a mistake
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Old 12-13-2020, 11:29 AM   #49
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Yeah, back on topic. Too much w*rk talk there for a second. I also want to give appreciation to gause's idea. Especially if you are early retired, doing just a little bit in the Roth not only gives you a nice trial, it also gets the 5 year Roth timer ticking.
I get confused on interpreation of this. Once you do that conversion,, any conversion there after reverts back to that initial conversion date? I am talking about before 59.5 as I realize after 59.5 it does not matter for.

So if I convert $100 in 2021 as a test and I am 47 years old, then in 2022, 2023, 2024 I convert large amounts from Trad. IRA to roth, those large amounts clocks start based on 2021? My undertssanding is before 59.5, each conversion is it's own 5 year clock?

So the 2022 conversion are not available until 2027, 2023 in 2028 etc.
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Old 12-13-2020, 11:54 AM   #50
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^ No

For Roth conversions, each conversion has a separate 5 year clock that you need to be aware of and track if you plan to withdraw the money before age 59 1/2. It sounds like your original understanding is correct.

The other 5-year timer, that you may need to get going, is the time since your first Roth IRA is initially opened.

This may come into play if you are over age 54 1/2 when you open your first Roth IRA. To withdraw earnings tax free, you need to be a) over age 59 /12 AND b) five years must have past since you opened your first Roth IRA (or perhaps qualify for one of the exceptions).


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Old 12-13-2020, 12:00 PM   #51
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Got it, I plan to roll 401k to Trad. IRA next year with small test conversion to Roth, large conversions do not start until 5 years after. So the 1st 5 year clock will be more than satisfied by time I start taking withdrawals.

If all goes to plan I may not even take those withdrawals before 59.5 anyways. Thanks.
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Old 12-13-2020, 12:57 PM   #52
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gauss, as usual, said it all as to what I was talking about. I doubt I'll need my Roth any time soon but it doesn't hurt to start that first-open-Roth timer. I did not have a Roth account before. This is my first. I was 56 when I made that first contribution, so what gauss is saying is spot on.

Sorry to confuse the issue.
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Old 12-13-2020, 01:34 PM   #53
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It is quite a good feeling to not actually need the Roth assets before age 59 1/2 but to know that the contributions and possibly conversions are available to you.

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Old 12-13-2020, 01:58 PM   #54
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It is quite a good feeling to not actually need the Roth assets before age 59 1/2 but to know that the contributions and possibly conversions are available to you.

-gauss
I always figured that the retirement accounts were for exactly that, retirement. If the SHTF while still in the saving mode, I could access it, albeit with a possible penalty (5 yr or 59.5 or ?) and the associated possible tax implication (tIRA). I just figured that if the time came that I NEEDED to access it before retirement time, that 10% penalty would not be a big deal if it was keeping me out of bankruptcy. Fortunately I never needed to access the retirement stash before retirement. Plan for the worse and hope for the best.
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Old 12-13-2020, 02:40 PM   #55
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Yes, there is the limitation on how often you can do it.
Thanks for the great info.
I still like your option of rolling the taxes back into the Roth.
Sorry for the questions.

So I understand.
If you don't have any withholdings or quarterly payments throughout the year and you take a tIRA distribution at the end of the year and send in the taxes from a taxable account will you be penalized?


If you and DW each have a tIRA and a Roth you could alternate years doing a Roth conversion and rolling the taxes back into the Roth so you avoid the 12-month limitation on how often you can do it?
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Old 12-13-2020, 03:01 PM   #56
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....If you don't have any withholdings or quarterly payments throughout the year and you take a tIRA distribution at the end of the year and send in the taxes from a taxable account will you be penalized?...
No, but to prove that the timing of your tax payments was commensurate with your tax obligations you may have to fill out Form 2210, Schedule AI... which some people think of as a slight PITA.

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... If you and DW each have a tIRA and a Roth you could alternate years doing a Roth conversion and rolling the taxes back into the Roth so you avoid the 12-month limitation on how often you can do it?
Yes, I think so as the limitation is per IRA and not for a couple.
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Old 12-13-2020, 03:34 PM   #57
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I am paying taxes on a tIRA to rIRA out of my checking account, maximizing the value of the conversion.

Just for giggles, I tried a small conversion yesterday between Fidelity accounts. It wouldn't approve deductions for income taxes. I don't know if the conversion was too small or it is too late in the year for them to process tax deposits.
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Old 12-13-2020, 03:47 PM   #58
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Yes, I think so as the limitation is per IRA and not for a couple.
I thought it was per person.

So if I had two IRAs and did an indirect rollover from one of those IRAs today, then I would still have to wait 12 months plus 1 day to do an indirect rollover, regardless of whether I did this second rollover from the first IRA or the second IRA.

But I agree with you that if I had a spouse, they could do an indirect rollover from one of their IRAs. Provided, of course, that they had not done an indirect rollover in the past 12 months. IOW, me having done an indirect rollover doesn't impact their ability to do one.

Since most people only have one IRA of each type, what you wrote is typically equivalent. But some people have multiple for whatever reason.
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Old 12-13-2020, 05:21 PM   #59
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I thought it was per person.

So if I had two IRAs and did an indirect rollover from one of those IRAs today, then I would still have to wait 12 months plus 1 day to do an indirect rollover, regardless of whether I did this second rollover from the first IRA or the second IRA.

But I agree with you that if I had a spouse, they could do an indirect rollover from one of their IRAs. Provided, of course, that they had not done an indirect rollover in the past 12 months. IOW, me having done an indirect rollover doesn't impact their ability to do one.

Since most people only have one IRA of each type, what you wrote is typically equivalent. But some people have multiple for whatever reason.
You are right... I worded it poorly... per person.
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Old 12-15-2020, 05:32 PM   #60
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Yes... You have 60 days to put the withholding back into the Roth, but I would do it sooner rather than later. Essentially the transaction is split into two, with the withholding part being a cash distribution to you and you have 60 days to put it back.
I'm confused.
If he does a rollover from a 401K, pretax money, to another IRA/401k, then 100% can be rolled over with no tax consequence, now. The 60 days, is there, in case they send it to you as a check, you have the 30 or 60 days to hurry up and put it into the 401/ira pretax acct, and therefore no tax is due.

BUT....If he did a rollover from a 401K (PreTax money so totally taxable) to a Roth, which is post tax money, he needs to pay the income tax on the 401K money. Only post tax money goes into a Roth. Tax is due on all money you removed from a 401k, unless you roll it into another pretaxed IRA account.
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