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Old 04-28-2019, 10:42 AM   #21
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OK, thanks, I think that makes sense, but I wonder if that really works in practice. You tell your financial institution you want to convert $10K, and have them withhold 12%. They put $8800 in your Roth and pay $1200 in taxes. Can you then say, hey, that $1200, I'm actually going to roll that back into my tIRA (or a different tIRA if that's required)? Would they really be able to adjust the 1099-R?

My understanding of this is it's for when you want to rollover an IRA from one firm to another. You could do it directly, or you can have them send a check, and within 60 days you have to put it in another IRA, or else it's a distribution. But in this case they didn't send you a check. Is that not necessary for this to work? Has anyone actually done this?
Haven't done it yet, but planning to do it this year. It has been reported elsewhere in the Bogelheads forum that this has been done. I checked with our tIRA and Roth custodians and they confirm the validity of this tax withholding and rollover/conversion approach. And every time we have done prior conversions we have been given the opportunity to withhold federal and state income taxes with the conversion.

I confirmed I could do it two ways: (1) obtain a check from 401k custodian to roll over the funds to a Roth IRA custodian and withhold income taxes of 10-20 percent, deposit check into Roth IRA within 60 days along with the withheld taxs amount from your taxable funds; or (2) obtain check from 401K custodian without withholding any taxes, rollover check into tIRA and then later transfer/convert from tIRA to Roth IRA (this is the same custodian as our tIRA), withhold Federal and State taxes and pay the withheld amount separately from taxable funds into the Roth IRA.
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Old 04-28-2019, 10:48 AM   #22
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Haven't done it yet, but planning to do it this year. It has been reported elsewhere in the Bogelheads forum that this has been done. I checked with our tIRA and Roth custodians and they confirm the validity of this tax withholding and rollover/conversion approach. And every time we have done prior conversions we have been given the opportunity to withhold federal and state income taxes with the conversion.

I confirmed I could do it two ways: (1) obtain a check from 401k custodian to roll over the funds to a Roth IRA custodian and withhold income taxes of 10-20 percent, deposit check into Roth IRA within 60 days along with the withheld taxs amount from your taxable funds; or (2) obtain check from 401K custodian without withholding any taxes, rollover check into tIRA and then later transfer/convert from tIRA to Roth IRA (this is the same custodian as our tIRA), withhold Federal and State taxes and pay the withheld amount separately from taxable funds into the Roth IRA.
Cool, good info.
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Old 04-28-2019, 11:12 AM   #23
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OK, thanks, I think that makes sense, but I wonder if that really works in practice. You tell your financial institution you want to convert $10K, and have them withhold 12%. They put $8800 in your Roth and pay $1200 in taxes. Can you then say, hey, that $1200, I'm actually going to roll that back into my tIRA (or a different tIRA if that's required)? Would they really be able to adjust the 1099-R?

My understanding of this is it's for when you want to rollover an IRA from one firm to another. You could do it directly, or you can have them send a check, and within 60 days you have to put it in another IRA, or else it's a distribution. But in this case they didn't send you a check. Is that not necessary for this to work? Has anyone actually done this?
Good questions! I haven't done it but I believe I've seen Alan S. at fairmark.com suggest this and if my memory is correct, then it should be correct since it's coming from the IRA guru. I'm in the process of seeing what he says. In the meantime, here's my pet theory.........the 1099-R is somewhat irrelevant for the taxable amount........there is that infamous box in 2b) taxable amount not determined..................which , in my opinion, should always be checked since the 1099-R provider does not know if you have non-deductible contributions, are making a QCD, doing a rollover,etc. All you know from the 1099R is the gross distribution and the withholding. You determine the taxable amount and let IRS know why it differs by coding QCD, rollover, or providing the 8606.
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Old 04-28-2019, 11:14 AM   #24
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We don't make Q payments. Just have IRA holder pay the income taxes directly as part of IRA distribution - we never see/touch the money. Regardless of when in the year that is, IRS considers (It's the law?) the payment to be equally distributed throughout the year. I find this one time form fill out & payment approach simpler. Going on 8 years now.
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Old 04-28-2019, 11:19 AM   #25
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Good questions! I haven't done it but I believe I've seen Alan S. at fairmark.com suggest this and if my memory is correct, then it should be correct since it's coming from the IRA guru. I'm in the process of seeing what he says. In the meantime, here's my pet theory.........the 1099-R is somewhat irrelevant for the taxable amount........there is that infamous box in 2b) taxable amount not determined..................which , in my opinion, should always be checked since the 1099-R provider does not know if you have non-deductible contributions, are making a QCD, doing a rollover,etc. All you know from the 1099R is the gross distribution and the withholding. You determine the taxable amount and let IRS know why it differs by coding QCD, rollover, or providing the 8606.
I'm misunderstanding the issue with the 1099-R. Once you have taken a rollover (and it's considered a distribution when it's a conversion from tIRA to Roth IRa) from a tIRA, isn't a 1099-R always cut and doesn't the 1099 say whether you've had withholding from the distribution/rollover? Whether you transfer amounts withheld is a separate issue, isn't it? I'm not seeing the issue here.
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Old 04-28-2019, 11:20 AM   #26
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.....

I confirmed I could do it two ways: (1) obtain a check from 401k custodian to roll over the funds to a Roth IRA custodian and withhold income taxes of 10-20 percent, deposit check into Roth IRA within 60 days along with the withheld taxs amount from your taxable funds; .....
We did this last year, cashed out an IRA from bank and had them withold the taxes on it.
Then we deposited the money into another bank.
Told that other bank we were transferring the IRA $$ , and had them take the check amount plus the taxes amount and stuff it into a ROTH <edited> account.

It was a pain in the butt due to the phone calls involved, and the small amount of money, and it used up our 1 per year rollover opportunity.
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Old 04-28-2019, 11:30 AM   #27
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I'm misunderstanding the issue with the 1099-R. Once you have taken a rollover (and it's considered a distribution when it's a conversion from tIRA to Roth IRa) from a tIRA, isn't a 1099-R always cut and doesn't the 1099 say whether you've had withholding from the distribution/rollover? Whether you transfer amounts withheld is a separate issue, isn't it? I'm not seeing the issue here.
The issue (explained in more detail in post #23) is that the 1099-R might show a gross distribution of e.g. 10K, a taxable amount of 10K , and a 2K withholding. If you replaced the 2K w/h w/ a timely rollover of 2K back into
TIRA, you should only be taxed on the 8K Roth conversion but the 1099R suggests otherwise. I think RB wanted to know how the 1099-R would reflect the correct status and my current thinking is that it won't and you have to explain it.
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Old 04-28-2019, 11:48 AM   #28
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^^^^^
I think if you take $10K out of an IRA, no matter what you do in the withdrawal process, the tax-ability is still $10K.

If I take $10K out of an IRA , it does not matter if I get $2K for taxes withheld, and $8K in my pocket. Or I get $10K in my pocket.
The taxable amount is $10K.
When I roll that over to ROTH and put in the $10K it does not matter if the money is $10K or ($2K + $8K).
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Old 04-28-2019, 12:11 PM   #29
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Hmmm. I guess I’m still misunderstanding the issue. One voluntarily withholds based on an estimate of your entire tax liability. This is true for wage withholding or distributions. I’ve never withheld in the past from Roth conversions as I withheld from my pension, which was sufficient for safe harbor rules.

For 2019, if we do a mega conversion, we’ll be right at the top of the 24% bracket and though I’ve increased pension withholding it might not be enough for safe harbor so at the end of this year we’ll withhold from a conversion to cover
our tax liability for safe harbor purposes. I’m not withholding my liability for the conversion, but for the gap I’m filling for safe harbor purposes.
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Old 04-28-2019, 12:27 PM   #30
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^^^^^
I think if you take $10K out of an IRA, no matter what you do in the withdrawal process, the tax-ability is still $10K.

If I take $10K out of an IRA , it does not matter if I get $2K for taxes withheld, and $8K in my pocket. Or I get $10K in my pocket.
The taxable amount is $10K.
When I roll that over to ROTH and put in the $10K it does not matter if the money is $10K or ($2K + $8K).
You are correct here. In the example I used, the rollover was rolled back into TIRA so only 8K should be taxed.
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Old 04-28-2019, 12:31 PM   #31
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My issue is the end of the year timing. I like to have all my distributions in hand so I know how to stay off the edge of the ACA cliff, or take it to the top of a tax bracket, out if NIIT, or whatever reason, so it's last December.

Say I convert $100K to my Roth, and ask them to withhold $20K in taxes. Now if I'm a little slow in rolling that $20K back into my tIRA, and don't get to it in January, what is my 1099-R going to show? Do I need to wait for an amended 1099-R, and when will that come? What I need for this to come out as is an $80K Roth conversion, but it's probably going to look like $100K distributed from my tIRA. Would I just need to make sure both steps happen by Dec 31?

I don't know what a 1099-R looks like if I don't convert the whole amount, and I don't know remember what a rollover looks like on it. Maybe it's not as complicated as I think, but making quarterly estimated payments and filing 2210 if needed might be simpler.
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Old 04-28-2019, 02:32 PM   #32
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Say I convert $100K to my Roth, and ask them to withhold $20K in taxes. Now if I'm a little slow in rolling that $20K back into my tIRA, and don't get to it in January, what is my 1099-R going to show?
It should show, distribution/conversion of $100K; withholding of $20K. Your form 5498, from the custodian of your Roth, should say conversion amount of $80K unless you add the $20K from your taxable funds, in which case the form 5498 would say $100k as the conversion amount. I'm no expert, but I'm thinking this is the way it should play out.

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Do I need to wait for an amended 1099-R, and when will that come? What I need for this to come out as is an $80K Roth conversion, but it's probably going to look like $100K distributed from my tIRA. Would I just need to make sure both steps happen by Dec 31?
Why would the 1099-R need to be amended? it states exactly what occurred: you took/distributed $100K from your account; $80K went to the Roth and $20K went to IRS or the State. Well, conversions are yearly so I think you have to do everything, included rolling over $20K (to replace the $20K withheld, by the end of the year.

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I don't know what a 1099-R looks like if I don't convert the whole amount, and I don't know remember what a rollover looks like on it. Maybe it's not as complicated as I think, but making quarterly estimated payments and filing 2210 if needed might be simpler.
Not sure I agree that 2210 filings of estimate taxes are simpler; it seems tax withholding from tIRAs (with conversions) or from any distributions, including RMDs, requires one to just just off a box on the same form you are using to take a distribution or conversion.
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Old 04-28-2019, 02:40 PM   #33
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It should show, distribution/conversion of $100K; withholding of $20K. Your form 5498, from the custodian of your Roth, should say conversion amount of $80K unless you add the $20K from your taxable funds, in which case the form 5498 would say $100k as the conversion amount. I'm no expert, but I'm thinking this is the way it should play out.

Why would the 1099-R need to be amended? it states exactly what occurred: you took/distributed $100K from your account; $80K went to the Roth and $20K went to IRS or the State. Well, conversions are yearly so I think you have to do everything, included rolling over $20K (to replace the $20K withheld, by the end of the year.
Except that the net of it all, with the rollover return of $20K to my tIRA, should be a net taxable distribution of $80K out of my tIRA and into my Roth. My tax payment came out of my taxable account since I returned $20K to my RothtIRA, but the process makes it count as withholding.

The way you are describing it looks like $100K is taxable, which is not the case after the rollover. That's why I think I would want to see an amended 1099-R.

One or both of us is confused or unclear, which is exactly why I say this looks like it is complicated. Form 2210 is burdensome, but not complicated.
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Old 04-28-2019, 02:55 PM   #34
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I'm the original poster.

As Kaneohe and others have suggested, I'm taking a crack at filling out the 2210 form. It's actually worse than doing my taxes four times, because when I did the taxes, everything was loaded in automatically.

In contrast, when filling out the 2210 form, I have to go back to each of four separate taxable accounts and recreate each quarter's income. And it has to be categorized as dividends, interest, short term and long term capital gains.

I haven't been able to figure out how to get the capital gains by quarter in the Fidelity account.

This has been a good lesson. Either four equal quarterly payments, or have the taxes withheld from the IRA distributions.
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Old 04-28-2019, 03:10 PM   #35
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I was messing with Form 2210 earlier this year, in case I have to file it. I have my own issues with timing of income as well as how the ACA subsidy interacts with it, so I won't try to hijack your thread.


I will agree that having to determine your ~quarterly income throughout the year along with the taxes due using the QDLTCGW is a major PITA. As or cap gains from Fidelity, they all have a distribution date so you can slot them within the date ranges or each of the 4 ~quarters for income purposes.
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Old 04-28-2019, 03:21 PM   #36
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I'm the original poster.

As Kaneohe and others have suggested, I'm taking a crack at filling out the 2210 form. It's actually worse than doing my taxes four times, because when I did the taxes, everything was loaded in automatically.

In contrast, when filling out the 2210 form, I have to go back to each of four separate taxable accounts and recreate each quarter's income. And it has to be categorized as dividends, interest, short term and long term capital gains.

I haven't been able to figure out how to get the capital gains by quarter in the Fidelity account.

This has been a good lesson. Either four equal quarterly payments, or have the taxes withheld from the IRA distributions.
You are so brave !!!

This is why I now just pay 1.1x last year tax in 4 installments, so I have the safe harbor.
With the low interest rates, I might overpay but the missed interest is very tiny, and is vastly outweighed by 1 penalty from either the IRS/State.
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Old 04-28-2019, 03:36 PM   #37
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You are so brave !!!

This is why I now just pay 1.1x last year tax in 4 installments, so I have the safe harbor.
With the low interest rates, I might overpay but the missed interest is very tiny, and is vastly outweighed by 1 penalty from either the IRS/State.
That can work, if you have pretty consistent income.

In 2016, 2017, 2018, my total taxes were 0, 13842, 34, respectively. Safe harbor was not a good place for 2018.
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Old 04-28-2019, 03:45 PM   #38
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In 2016 someone on the Bogleheads forum mentioned this method of paying taxes if taking RMD's:
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Another popular strategy among those taking RMDs is to have 100% of the 2014 tax bill taken out of the December 2015 RMD and forgo the estimated tax payments altogether.
So knowing that the internet was always the truth, that is what I did in 2018 for my first RMD year. So far the IRS has not objected and I filed in mid February.

Anyone see a problem with this approach?
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Old 04-28-2019, 03:47 PM   #39
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I'm the original poster.

As Kaneohe and others have suggested, I'm taking a crack at filling out the 2210 form. It's actually worse than doing my taxes four times, because when I did the taxes, everything was loaded in automatically.

In contrast, when filling out the 2210 form, I have to go back to each of four separate taxable accounts and recreate each quarter's income. And it has to be categorized as dividends, interest, short term and long term capital gains.

I haven't been able to figure out how to get the capital gains by quarter in the Fidelity account.

This has been a good lesson. Either four equal quarterly payments, or have the taxes withheld from the IRA distributions.
I'm assuming ? that this was written after my PM to you re: post 14 in this thread? If so, I didn't do a good job writing it or you did not do a good job reading it. That post only requires you to fill out Pt I of the 2210 and the simple wksht listed. It does not require you to fill out Sch AI. If you meet the condition of having paid 80% of your taxes thru w/h and est. taxes by mid Jan 2019, you qualify for a waiver of penalty.....for that year only....a one time gift to you.

Glad you learned your lesson tho about the equal quarterly payments or w/h
for normal yrs. Not the only way to do things but sure makes life simpler.
Lessons learned the hard way stick w/ you longer too so some good came out
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Old 04-28-2019, 04:09 PM   #40
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I'm assuming ? that this was written after my PM to you re: post 14 in this thread? If so, I didn't do a good job writing it or you did not do a good job reading it.
I think I have to take the blame, along with my H&R Block tax software.

I opened my tax return, then searched for form 2210. When I opened the form in the tax software, I didn't notice that it said page 4, and it did say part I at the top of all that business about the quarterly incomes. I have now googled the form, and I can see what you were talking about.

Oh, well. Now I have a better understanding of the whole process.
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