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Old 01-13-2021, 11:51 AM   #101
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I'm pretty sure that we have talked about that before in other threads.
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Old 01-13-2021, 12:28 PM   #102
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Originally Posted by sengsational View Post
I like "the fritz method". I wish I'd thought if it.
I can't take credit for it, as it was discussed off and on in this thread.

I did think it is a great way to avoid estimated quarterly tax payments, and the complications of Form 2210 (uneven income justification to avoid tax penalties).

Also for income streams where I could not or did not withhold enough Federal taxes (ie. Taxable account dividends at Banks/Vanguard where they don't allow tax withholding). This has happened to me on the state level as mentioned in my earlier post. And what a real PITA it was to resolve (and not my fault).

There is a real catch22 scenario where well thought out tax planning withholding can go out the window, when you decide to make a significant move with your investments. What you need to think about is how it will affect your taxable income in prior quarters. You can't go back and make or redo your prior quarterly estimated tax payments (a real gotcha). Having Vanguard withhold Federal taxes on my Roth conversions, and the IRS considering them evenly spread across the year will go a long way towards avoiding that pitfall.

Edit/add: I was a little slow in hitting the post button with my reply..
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Old 01-13-2021, 07:26 PM   #103
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Ok, a little curve ball on this method of IRA to Roth conversion.

Spoke with a person who told me that he didn't think that you could do more than one conversion per year utilizing this method.

The issue isn't that you can't do more than one IRA to Roth conversion during the year and have Vanguard withhold/pay the Federal tax to the IRS.

It's that you technically took a cash distribution (the taxes), and put that amount in the Roth (from another source) within the 60 day window allowed - which would fall under the once per year rollover rule. As such you would be limited to one in a 365 day period.

Long story short (if he's right), multiple conversions utilizing this method would not be allowed - only one per year...

It would be hard to verify multiple conversions this way IMHO, as I believe Vanguard reports your conversions/taxes as one lump sum on your tax forms. An IRS audit might bring out the issue.

Would appreciate any input on this issue from forum members using this method. Anyone doing multiple Roth conversions and having their investment company withhold/pay their Federal taxes, and putting that amount in their Roth within the 60 day window from another source?
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Old 01-13-2021, 08:50 PM   #104
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Originally Posted by fritz View Post
Ok, a little curve ball on this method of IRA to Roth conversion.

It's that you technically took a cash distribution (the taxes), and put that amount in the Roth (from another source) within the 60 day window allowed - which would fall under the once per year rollover rule. As such you would be limited to one in a 365 day period.
So you're saying the contribution that covers the withdrawal amount isn't considered part of the Roth Conversion but some other kind of rollover, so it is subject to the one rollover per year rule? Doing this wouldn't preclude additional "direct" Roth conversions or rollovers in the 365 day window where this method wasn't used, right? (sorry, I'm still coming to terms with some of the terminology).

I'm planning on doing a Roth 401K to Roth IRA conversion soon, which shouldn't involve any taxes or withholding, I hope I haven't precluded that now.
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Old 01-13-2021, 10:48 PM   #105
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Quote:
Originally Posted by fritz View Post
Ok, a little curve ball on this method of IRA to Roth conversion.

Spoke with a person who told me that he didn't think that you could do more than one conversion per year utilizing this method.

The issue isn't that you can't do more than one IRA to Roth conversion during the year and have Vanguard withhold/pay the Federal tax to the IRS.

It's that you technically took a cash distribution (the taxes), and put that amount in the Roth (from another source) within the 60 day window allowed - which would fall under the once per year rollover rule. As such you would be limited to one in a 365 day period.

Long story short (if he's right), multiple conversions utilizing this method would not be allowed - only one per year...

It would be hard to verify multiple conversions this way IMHO, as I believe Vanguard reports your conversions/taxes as one lump sum on your tax forms. An IRS audit might bring out the issue.

Would appreciate any input on this issue from forum members using this method. Anyone doing multiple Roth conversions and having their investment company withhold/pay their Federal taxes, and putting that amount in their Roth within the 60 day window from another source?
Actually, that makes sense that the taxes withheld are really a withdrawal rather than a conversion...IOW let's say you do a $10k conversion and have $2k withheld so only $8k ends up in the Roth... in substance you have a $8k Roth conversion and a $2k withdrawal.

I'm not even sure if you can deposit the $2k directly to the Roth but perhaps you can... technically I think it is a $2k rollover contribution back into the tIRA with a simultaneous $2k Roth conversion. The reason that I'm thinking that is because you can't just willy nilly add money to a Roth... it needs to be a contribution or a conversion and if you just deposited $2k directly it would not seem to be either... but perhaps they view it substantively as a acceptable shortcut to redepositing the money to the tIRA and then converting it to the Roth.

All of that said, I'm not sure why one would want to do multiple conversions a year even to begin with.
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Old 01-13-2021, 10:54 PM   #106
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So you're saying the contribution that covers the withdrawal amount isn't considered part of the Roth Conversion but some other kind of rollover, so it is subject to the one rollover per year rule? Doing this wouldn't preclude additional "direct" Roth conversions or rollovers in the 365 day window where this method wasn't used, right? (sorry, I'm still coming to terms with some of the terminology).

I'm planning on doing a Roth 401K to Roth IRA conversion soon, which shouldn't involve any taxes or withholding, I hope I haven't precluded that now.
Yes to the first question and no to the second.

IOW you can do as many straight up Roth conversions with no withholding as you want... just like you can do as many tIRA trustee-to-trustee transfers as you want.

But you can only do one withdrawal and roll it over in 12 months... whether that is a straight up withdrawal where you get a check into your grubby little hands and then replace the withdrawal within 60 days or the more stealthy version where you have taxes withheld as part of a Roth conversion and then later replace the money in the Roth.

On the last part, if your conversion will be a trustee-to-trustee transfer or a plan-to-IRA rollover then you should be all set.

https://www.irs.gov/retirement-plans...-distributions
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Old 01-13-2021, 11:21 PM   #107
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Originally Posted by cat4ever View Post
So you're saying the contribution that covers the withdrawal amount isn't considered part of the Roth Conversion but some other kind of rollover, so it is subject to the one rollover per year rule? Doing this wouldn't preclude additional "direct" Roth conversions or rollovers in the 365 day window where this method wasn't used, right? (sorry, I'm still coming to terms with some of the terminology).

I'm planning on doing a Roth 401K to Roth IRA conversion soon, which shouldn't involve any taxes or withholding, I hope I haven't precluded that now.
I understood it to mean that when Vanguard converts the IRA to the Roth, it codes the funds going directly into the Roth as one transaction, and the funds that go to the Feds for taxes as another (cash).

It was the replacement of the taxes (cash) amount from the IRA sent to the Feds, that you deposit in the Roth from another source within the 60 day window that was a rollover transaction subject to the one per year rule.

It he's correct - it would limit Roth conversions of that nature to one per year. Any additional conversions within the 365 days would have to be -
100% to Roth conversions (no taxes withheld) - with timely payments of estimated taxes to the Feds,

or -

Partial Roth conversions where the portion withheld and coded for taxes (cash) would not be able to be redeposited into the Roth by you from another source.
I guess I can live with doing one Roth conversion per year, with the replacement of the taxes (cash) within the 60 day window - or paying estimated quarterly taxes on additional Roth conversions where 100% of conversion went directly into the Roth - or losing the ability to replace the tax (cash) amount on additional conversions.

Hopefully someone here with hands-on experience doing Roth conversions, who is replacing the portion coded/withheld for Federal taxes (cash) paid on your behalf, can verify how to do it properly.

Edit/add - man I'm slow at composing-posting responses. pb4's answer verifies that it does fall under the one per year rule....
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Old 01-14-2021, 09:31 AM   #108
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My MO is to first "do my taxes" in December, then do the Roth conversion, so once a year would be fine. But it would be a timing PITA to not do it on day 364 or something.
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Old 01-14-2021, 09:56 AM   #109
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The way way that I understand it is, I think, that you can do multiple Roth conversions if they are all considered direct transfers.

The issue, I suspect, is that when the conversion is implemented via a 60-day rollover where you take possession of the cash (Tax withholding would fall into this category.). When you try to replace the cash within 60 days you are using one of your rollovers.
In this case you make likely run afoul of the 1 per year rollover rule because this strategy was using a rollover to implement a Roth Conversion.

Personally, I still have funds in a 401k, so hopefully if I need a second rollover, I could accomplish that via a 401k --> IRA 60-day rollover that is not limited to once per year.

-gauss
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Old 01-14-2021, 01:23 PM   #110
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The way way that I understand it is, I think, that you can do multiple Roth conversions if they are all considered direct transfers.

The issue, I suspect, is that when the conversion is implemented via a 60-day rollover where you take possession of the cash (Tax withholding would fall into this category.). When you try to replace the cash within 60 days you are using one of your rollovers.
In this case you make likely run afoul of the 1 per year rollover rule because this strategy was using a rollover to implement a Roth Conversion.

Personally, I still have funds in a 401k, so hopefully if I need a second rollover, I could accomplish that via a 401k --> IRA 60-day rollover that is not limited to once per year.

-gauss
I believe you could pull off a 2nd Roth conversion with Vanguard withholding/paying Federal taxes and replacing it within the 60 day window (a rollover under the one per year rule), if you are married and your spouse has their own IRA/Roth accounts. Kind of a way around the rule using his/her accounts for the 2nd conversion, as it's not the same person/accounts (a team strategy for planning purposes). Would see the one with the largest balance 1st, and the top off with the lower one. You could plan the conversions 6mos apart for timing optons.
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