Doesn't the withdrawn amount count against your AGI?
No. There's no effect on AGI. It's a non-taxable 60-day rollover.
Doesn't the withdrawn amount count against your AGI?
No. There's no effect on AGI. It's a non-taxable 60-day rollover.
The phrase "fiendishly clever" comes to mind.
so no 1099-R gets generated that shows taxable income, as with normal traditional IRA to Roth IRA conversions?
This is what I have always believed. I am not clear on why it is not recommended except of course the conversion is a bit smaller. Someone mentioned the payment is subject to an early withdrawal penalty if <59.5 but that does not apply to me.We pay out of the conversion despite the recommendation not to. Easy peasy and no worries. Barely even notice it.
I am planning on pretty aggressive Roth conversions again this year. I am planning to do multiple conversions but hate paying quarterly taxes. Can someone explain the strategy to do a year end conversion for taxes to avoid having to pay estimated taxes throughout the year?
We pay out of the conversion despite the recommendation not to. Easy peasy and no worries. Barely even notice it.
If you pay the IRS from a taxable account, you forego the future earnings on that amount invested in that account. If you pay the IRS from your Roth account, you will forego the future earnings from that amount invested in the Roth account. Since the former will be taxed and the latter won't, it seems smarter to pay the taxes from a taxable account.
We have 2 pensions, dividends, Roth conversions throughout the year, and some hobby income. We have no withholding and no quarterly estimated payments.
Like others, I withdraw our safe harbor amount from a tIRA each December, instructing Fidelity to withhold 100%. Following January, I repay the IRA from taxable funds and instruct Fidelity to code it as a 60-day rollover. So the original tIRA withdrawal is non-taxable... like it never happened.
In effect, we use taxable funds to pay tax each January for the prior year. But it's deemed to have been withheld equally throughout the prior year. So no worries about underwithholding or filing Form 2210 (AI). The process is simple and the cash flow is quite favorable.
To avoid complications associated with the once-per-year restriction on rollovers, I alternate between my IRA and DW's IRA.
It depends on your situation: how huge your tax-deferred account is compared to your taxable account.But your Roth balance ends up lower than it could have been, so the future earnings will be less than they could have been. The time when you will notice the difference is not now, it's when you start withdrawing from your Roth IRA(s) years or even decades from now.
If you pay the IRS from a taxable account, you forego the future earnings on that amount invested in that account. If you pay the IRS from your Roth account, you will forego the future earnings from that amount invested in the Roth account. Since the former will be taxed and the latter won't, it seems smarter to pay the taxes from a taxable account.
+1. I convert 80%+ in Jan, and then do my final amount in Dec after I’ve seen all my dividends, gains etc. so I know exactly where my MAGI will be (for tax bracket, IRMAA, etc.). Why have growth in my TIRA when it can be in my Roth all year? I pay estimated taxes quarterly, it’s a piece of cake doing Fed and state withholding online.but statistically you forego tax-free growth in your Roth by waiting so long into the year.
converting at the beginning of the year is the optimal approach based on back-testing.
paying the taxes owed on that conversion contemporaneously via electronic payment is trivial.
as for the annualization method to avoid penalties, my CPA does that, don't the popular tax software packages offer that as well?
...Please can you clarify what you mean by "instructing Fidelity".
I understand you do this twice, once to determine the withholding percentage and then again in January to code as a rollover.
Is this something you do online or do you have to call them? If you call them, what exactly do you say...
But your Roth balance ends up lower than it could have been, so the future earnings will be less than they could have been. The time when you will notice the difference is not now, it's when you start withdrawing from your Roth IRA(s) years or even decades from now.
If you pay the IRS from a taxable account, you forego the future earnings on that amount invested in that account. If you pay the IRS from your Roth account, you will forego the future earnings from that amount invested in the Roth account. Since the former will be taxed and the latter won't, it seems smarter to pay the taxes from a taxable account.