First Roth Conversion (Fidelity)

[G-Man]

This morning I called Fidelity to do the Roth conversion and the 60-day rollover. It took 20 minutes on the phone, and everything went smoothly. It took a little longer because the rep added beneficiaries for the new rollover IRA and I had some questions. The rep was very friendly, knowledgeable, and proficient.

I converted $100k from rollover IRA to Roth
I withheld $12k for federal taxes
I withheld $8k for Co state taxes
I did the 60-day rollover of $20k from CMA to Roth

The entire $100k is in the Roth. It is fully settled. I can trade or withdraw the $100k immediately. Later today I will rebalance my portfolio.

I would love to know your Fidelity rep information. I plan to do something similar next year.

 

[imjustawarrior]

I would love to know your Fidelity rep information. I plan to do something similar next year.

I just called the number that is listed on my Fidelity Summary page. I said "Agent". I then said "Roth conversion". I got whoever came up.

If you would like the specific words I used with the agent, I could try to recreate them. I think being very precise and using the proper terminology is important.

 

[G-Man]

I just called the number that is listed on my Fidelity Summary page. I said "Agent". I then said "Roth conversion". I got whoever came up.

If you would like the specific words I used with the agent, I could try to recreate them. I think being very precise and using the proper terminology is important.

Can you PM me the rep name and extension.

 

[imjustawarrior]

Can you PM me the rep name and extension.

I don't have that info. I just used whoever answered the phone. I think if you have your wording correct, you will be fine.

In my case it was:

I want to do a Roth conversion from the rollover IRA of $100,000 and have 12% withheld for federal taxes and 8% withheld for state taxes.

Now, I want to do a 60-day rollover for $20,000 from my CMA to my Roth IRA. They will ask you where the money came from. Just say, I am doing an indirect Roth conversion from another brokerage. I need to do a 60-day rollover of $20,000 from my CMA to my Roth IRA.

Everything will move instantly. If you are logged in, you can refresh you accounts page and see that the money moved. I was also able to trade the $100k in my Roth immediately.

 

[imjustawarrior]

Here is the process I will follow moving forward:

1. Calculate dollar value to convert and taxes to be withheld by creating dummy tax return.
2. Have enough money in CMA to do 60-day rollover for amount withheld for taxes.
3. From Fidelity Netbenefits initiate direct, partial rollover to Fidelity rollover IRA.
4. Wait for money to settle in rollover IRA.
5. Call Fidelity to perform Roth Conversion with tax withholding and the 60-day rollover of tax amount from CMA to Roth.
6. Rebalance portfolio.

I started step 3 on Tuesday. Step 6 was completed on Thursday.

 

[Al18]

Thanks for this thread - very helpful. Even though I've been making smaller Roth IRA conversions for a few years, I've never used the 60 day rollover option. I'll try it next year.

 

[RetiredHappy]

From my experience, all the Fidelity call center folks are knowledgable and great. If you have a local office, you can also use a local rep to help you. We have an assigned FA who is also a CFP and Senior VP at the local office and she wants to see us every quarter just to chat about anything that we want about our investments and Fidelity's outlook etc. She is free to us and is very helpful. She has a team under her and can help with paperwork like transfers from other brokerages over, or anything that we need help with. We usually decline the quarterly meetings but do meet up with her twice a year.

 

[Kings over Queens]

What is the reason for the 60 day rule? Is a direct transfer from the the 401k to the IRA not possible?

I was looking at a small roth conversion for my son that would have him sell positions in his old employer account at Transamerica, transfer that cash to like kind accounts at Schwab (he has both 401k roth and tax deferred) and then perform the roth conversion once Schwab has the funds. He would pay the tax on the conversion separately.

From what I've read (prompted by this thread) the 60 day rule is good when you want temporary use of the funds.

What am I missing?

 

[imjustawarrior]

What is the reason for the 60 day rule? Is a direct transfer from the the 401k to the IRA not possible?

I was looking at a small roth conversion for my son that would have him sell positions in his old employer account at Transamerica, transfer that cash to like kind accounts at Schwab (he has both 401k roth and tax deferred) and then perform the roth conversion once Schwab has the funds. He would pay the tax on the conversion separately.

From what I've read (prompted by this thread) the 60 day rule is good when you want temporary use of the funds.

What am I missing?

Background:
I am retired and younger than 59.5. I am converting up to the NIIT threshold ($250k) this year. I need to make sure I have enough taxes paid during the year through withholding or make estimated tax payments. I do not want to do estimated tax payments. They are due quarterly, and it involves learning how to pay taxes to the federal government and Colorado. Withholdings are so much easier and robust. You can do all your withholdings anytime throughout the year.

What I did:
I did a direct partial rollover from my 401k at Fidelity to my IRA at Fidelity. That is not a taxable event.

I then did a Roth conversion of the amount I rolled over from my 401k. That is a taxable event. I could either have taxes withheld at time of conversion or make an estimated tax payment. I don't want to make estimated tax payments, so I had taxes withheld. If I left it at that, I would have a 10% penalty and not all the money would find its way to the Roth. I don't want the 10% penalty, and I want all the money to find its way to the Roth. That is why I did a 60-day rollover. It gets all the money to the Roth, which I want, and it prevents the 10% penalty.

Summary:
$100k partial direct rollover from 401k to rollover IRA
Convert $100k in IRA to Roth and have $12k withheld for federal taxes and $8k for Colorado taxes
$20k 60-day rollover from my Fidelity CMA to my Roth

$100k from 401k is now in my Roth
$20k is gone from my taxable CMA account for taxes
Taxes paid by withholding

 

[JohnDoe]

What is the reason for withholding any taxes?

 

[imjustawarrior]

What is the reason for withholding any taxes?

We have a pay as you go tax system. I will have a tax liability for 2025. If I don't pay taxes during the year, I will be hit with a penalty. I chose to hit the 90% of current tax year safe harbor threshold (70% threshold for Colorado).

If I didn't do withholding, I would have to make quarterly estimated tax payments, which I don't want to do.

 

[Kings over Queens]

Background:
I am retired and younger than 59.5. I am converting up to the NIIT threshold ($250k) this year. I need to make sure I have enough taxes paid during the year through withholding or make estimated tax payments. I do not want to do estimated tax payments. They are due quarterly, and it involves learning how to pay taxes to the federal government and Colorado. Withholdings are so much easier and robust. You can do all your withholdings anytime throughout the year.

What I did:
I did a direct partial rollover from my 401k at Fidelity to my IRA at Fidelity. That is not a taxable event.

I then did a Roth conversion of the amount I rolled over from my 401k. That is a taxable event. I could either have taxes withheld at time of conversion or make an estimated tax payment. I don't want to make estimated tax payments, so I had taxes withheld. If I left it at that, I would have a 10% penalty and not all the money would find its way to the Roth. I don't want the 10% penalty, and I want all the money to find its way to the Roth. That is why I did a 60-day rollover. It gets all the money to the Roth, which I want, and it prevents the 10% penalty.

Summary:
$100k partial direct rollover from 401k to rollover IRA
Convert $100k in IRA to Roth and have $12k withheld for federal taxes and $8k for Colorado taxes
$20k 60-day rollover from my Fidelity CMA to my Roth

$100k from 401k is now in my Roth
$20k is gone from my taxable CMA account for taxes
Taxes paid by withholding

Got it.

Appreciate the detailed response and the effort you put into explaining this process step by step.

 

[imjustawarrior]

Got it.

Appreciate the detailed response and the effort you put into explaining this process step by step.

I'm glad people are appreciating this. That was the goal.

Over on bogleheads there is a very lengthy thread about this, but there is no succinct summary of the process. I'm trying to make it easy for anyone who wants to go down this road.

 

[mebden]

Now we got to get someone that does this process on Schwab and by the way what is a CMA?

 

[imjustawarrior]

Now we got to get someone that does this process on Schwab and by the way what is a CMA?

CMA is a Cash Management Account. It provides banking features (e.g., check writing, atm). Schwab has something similar.

 

[mebden]

CMA is a Cash Management Account. It provides banking features (e.g., check writing, atm). Schwab has something similar.

Ok more or less a checking account with all your after tax money in it lol

 

[imjustawarrior]

Ok more or less a checking account with all your after tax money in it lol

A CMA at Fidelity is a brokerage account with banking features. I use it as my bank. It has billpay, checks, debit card, ATM, .... It is after tax. I have a separate brokerage account for my investments.

 

[mebden]

A CMA at Fidelity is a brokerage account with banking features. I use it as my bank. It has billpay, checks, debit card, ATM, .... It is after tax. I have a separate brokerage account for my investments.

Yes, I'm looking into this at Schwab, but I think I looked into this before and their interest rate for money in the account isn't crap and I can get better rates with an online savings account

 

[somber]

Yes, I'm looking into this at Schwab, but I think I looked into this before and their interest rate for money in the account isn't crap and I can get better rates with an online savings account

I think at Schwab you have access to pretty decent money market funds, but not as the sweep (settlement fund). You have to manually invest in those. Schwab makes some profit on this arrangement, as most people won't invest it right away.

 

[Slim11]

Background:
I am retired and younger than 59.5. I am converting up to the NIIT threshold ($250k) this year. I need to make sure I have enough taxes paid during the year through withholding or make estimated tax payments. I do not want to do estimated tax payments. They are due quarterly, and it involves learning how to pay taxes to the federal government and Colorado. Withholdings are so much easier and robust. You can do all your withholdings anytime throughout the year.

What I did:
I did a direct partial rollover from my 401k at Fidelity to my IRA at Fidelity. That is not a taxable event.

I then did a Roth conversion of the amount I rolled over from my 401k. That is a taxable event. I could either have taxes withheld at time of conversion or make an estimated tax payment. I don't want to make estimated tax payments, so I had taxes withheld. If I left it at that, I would have a 10% penalty and not all the money would find its way to the Roth. I don't want the 10% penalty, and I want all the money to find its way to the Roth. That is why I did a 60-day rollover. It gets all the money to the Roth, which I want, and it prevents the 10% penalty.

Summary:
$100k partial direct rollover from 401k to rollover IRA
Convert $100k in IRA to Roth and have $12k withheld for federal taxes and $8k for Colorado taxes
$20k 60-day rollover from my Fidelity CMA to my Roth

$100k from 401k is now in my Roth
$20k is gone from my taxable CMA account for taxes
Taxes paid by withholding

Is it just because the amount is so high? I converted 20k the last 3 years and just paid the taxes at rhe end of the year when filled?

 

[imjustawarrior]

Is it just because the amount is so high? I converted 20k the last 3 years and just paid the taxes at rhe end of the year when filled?

Yes. We have a lot of dividends and the $100k Roth conversion to cover. We need to pay taxes during the year to avoid penalties.

 

[Slim11]

I get that, but I wonder way I never had to do it? I do have taxes taken out of my pension. But after that there is the 20 k for the Roth conversions and another 30 to 50 in dividands and cd intrest. I usally owe 10 k at tax time.

 

[imjustawarrior]

I get that, but I wonder way I never had to do it? I do have taxes taken out of my pension. But after that there is the 20 k for the Roth conversions and another 30 to 50 in dividands and cd intrest. I usally owe 10 k at tax time.

You should look at your returns and see if you have been paying penalties.

 

[Slim11]

I'll look into it. I dont think so of they would have enough told me.

 

[stepford]

I have tax withheld from my pension checks every month. I believe I can make a single estimated tax payment in the 4th quarter corresponding to the tax on my December Roth conversion and not worry about any other payments during the year.