Roth conversion income limit

[crncrk]

I’d like to make a Roth conversion from my IRA to my Roth IRA, both at Vanguard. My spouse and I have already maxed out our $8000 each Roth IRA contributions, and a $31,000 Roth 401k contribution for 2025. We are over 50.

I see the MAGI limit for Roth contributions is $236,000.

Our W-2 income will be $40,000 + $175,000 = $215,000 and our taxable interest and dividends are $13000 which adds up to $228,000. Does this mean that the maximum amount I can convert is $8,000? Does the standard deduction factor into this calculation?

The reasoning is to use the witholding to pay income taxes that I should of been paying quarterly in 2025. The amount of tax due is around $5000.

Thank you for any guidance.

 

[SecondCor521]

Conversions and contributions are two distinct things in the eyes of the IRS.

The MAGI limit for Roth contributions does not apply to Roth conversions. You can convert any amount you wish as long as you are OK with the tax bill.

As long as your custodian supports it and you do it before the end of the year, you can have them withhold federal income taxes on the conversion, which will help with your possible 2025 underpayment issue.

Remember that the entire amount you Roth convert, including amounts withheld for taxes, will generally be treated as ordinary income and be added into AGI. So if, for example, you Roth convert and withhold $5000 to pay your tax bill, that will increase your AGI by $5000, so your federal tax bill might go up by another $1K or so.

 

[Phroig]

Yes, the income from the conversion itself does not count towards the $236K MAGI limit. I believe if you withhold taxes on the conversion, the withheld amount is an IRA distribution and would count. If you're not 59.5, you'd also pay a penalty. The solution, of course, is put the withholding amount back into the IRA within 60 days. Some folks think it's OK to deposit that money into the Roth as a transfer; I've never done that.

 

[SecondCor521]

Yes, the income from the conversion itself does not count towards the $236K MAGI limit.

The MAGI limit only applies to contributions, not conversions.

I believe if you withhold taxes on the conversion, the withheld amount is an IRA distribution and would count. If you're not 59.5, you'd also pay a penalty.

True, and good point.

The solution, of course, is put the withholding amount back into the IRA within 60 days. Some folks think it's OK to deposit that money into the Roth as a transfer; I've never done that.

If OP does this trick, they should make sure the custodian codes the deposit as a rollover contribution and not a regular contribution.

 

[crncrk]

Thank you for the replys -
I am over 59.5 so no penalty. Rather than do this conversion to satisfy the underpayment, should I just pay the IRS $5000 before year end? I was thinking that if I did the conversion, that would eliminate any underpayment penalty.

 

[SecondCor521]

Thank you for the replys -
I am over 59.5 so no penalty. Rather than do this conversion to satisfy the underpayment, should I just pay the IRS $5000 before year end? I was thinking that if I did the conversion, that would eliminate any underpayment penalty.

In the context of avoiding underpayment penalties, the IRS rules treat withholding better than estimated payments. So the conversion approach would be more likely to avoid an underpayment penalty.

It is also possible that an estimated tax payment would also avoid an underpayment penalty, but that would depend on your entire tax picture. If you made an estimated tax payment, it would be due by 1/15/2026, not the end of the year. And you would want to send it in with a 4Q 1040-ES payment coupon (or pay online if you prefer).

It is also possible you've already met a safe harbor in some other way and don't need to do anything, but again that would depend on your entire tax picture. If you're interested in exploring this option, I'd suggest looking at the first two pages of the instructions for Form 2210 at https://www.irs.gov/pub/irs-pdf/i2210.pdf. (Form 2210 is where the underpayment penalty is either avoided or calculated.)

 

[Exchme]

To avoid any late penalties and avoid having to pay quarterlies, we did an Indirect Rollover from my Roth. So I made a distribution from my Roth sufficient to pay the taxes, choosing to withhold 99% of it (that's the max I can set at Vanguard). The money had to be in the settlement account first, you can't withhold if selling shares. Then I replaced the funds in the Roth, checking the box on the input that this was a rollover from an IRA or employer sponsored plan. It's a weird Vanguard rule that that money could not come from the jointly held taxable account at Vanguard, it had to come from either an account in my name only or from an external bank account.

Net, the money went to the IRS via withholding and the money came from taxable. Money sent to the IRS via withholding is automatically timely so no penalties or interest. You are allowed to do this once every 365 days, so you can do it each year to take care of taxes and skip the quarterly estimate hassle.

 

[crncrk]

This is what I'll do, thanks for listing it out so well.
Thank you everyone for the education and helping me sort this out. This is a great community.

 

[Koolau]

This is what I'll do, thanks for listing it out so well.
Thank you everyone for the education and helping me sort this out. This is a great community.

We are here to help! Please visit often.

I'd forgotten a lot of this since it's been quite a while since I contributed OR converted. Age has a way of making one forget.

I eventually converted all of my tIRAs to Roth and now have only my 401(k) to worry about RMDs.

 

[crncrk]

Follow up - I talked with a rep this morning and completed a Roth distribution with 90% Fed and a small % State tax witholding. The funds came directly from selling VTSAX shares and didn't need to be from the settlement account. I plan to replace the Roth money from an external account in a few days. This is the first year our W-2's didn't cover our tax liability, and also our first distribution.
The help here is very good, thank you again.

 

[Bruno]

I am pretty slow but how does the IRA know what your MAGI is? I only see AGI on line 11. Is there a MAGI policeman watching us? I should have read this thread before i moved $8000 in cash today to my Roth from my brokerage account. I might be in trouble.

 

[TheWizard]

I am pretty slow but how does the IRA know what your MAGI is? I only see AGI on line 11. Is there a MAGI policeman watching us? I should have read this thread before i moved $8500 in cash today to my Roth from my brokerage account. I might be in trouble.

Doesn't sound like a Roth conversion to me...

 

[Bruno]

Doesn't sound like a Roth conversion to me...

My wife still works and Fido said i could do a Roth contribution up to $8000 for the year 2025. I guess they dont know how much money we have made in 2025. I think now i have exceeded the income limit.

 

[SecondCor521]

I am pretty slow but how does the IRA know what your MAGI is? I only see AGI on line 11. Is there a MAGI policeman watching us? I should have read this thread before i moved $8000 in cash today to my Roth from my brokerage account. I might be in trouble.

The IRS can calculate MAGI for the purposes of Roth contributions with your AGI plus other information that is also on your tax return.

The custodian will inform them about the Roth IRA contribution next spring via a 5498. Like most things, when you get a tax form (like a 5498 or a 1099), the IRS gets a copy.

If the information in the IRS computers shows you've broken the MAGI contribution rule for Roth contributions, they might send you a letter.

 

[Bruno]

*UPDATE* I was able to call Fido and one guy sent me a 4 page form to fill out and return. I ask him a couple of question and the premium service Rep Tommy told me he could not help me line by line. I started trying to fill out the form and thought I just did this today WHY not just transfer it back from my Roth to my Brokerage. I chickened out and call Fido again and got another PS Rep and he told me i can help you fill it out. Then he said you just made this today, I said yes and he said put a hold on form for a minute and he came back and told me the help desk told him he could just delete the pending transaction. Thank You Paxton with Fido.

 

[ChrisC]

To avoid any late penalties and avoid having to pay quarterlies, we did an Indirect Rollover from my Roth. So I made a distribution from my Roth sufficient to pay the taxes, choosing to withhold 99% of it (that's the max I can set at Vanguard). The money had to be in the settlement account first, you can't withhold if selling shares. Then I replaced the funds in the Roth, checking the box on the input that this was a rollover from an IRA or employer sponsored plan. It's a weird Vanguard rule that that money could not come from the jointly held taxable account at Vanguard, it had to come from either an account in my name only or from an external bank account.

Net, the money went to the IRS via withholding and the money came from taxable. Money sent to the IRS via withholding is automatically timely so no penalties or interest. You are allowed to do this once every 365 days, so you can do it each year to take care of taxes and skip the quarterly estimate hassle.

This was a Roth IRA to Roth IRA indirect rollover (back into the same Roth IRA), correct? In that case, the 1-365 day rule restriction on indirect rollovers applies. Have you done a qualified plan (like 401K) designated Roth funds indirect rollover to a Roth IRA, with tax withholding, in which case the 1-365 rule does not apply? I'm trying to figure my flexibility to manage taxes through rollovers or transfers to my Roth IRA at Fidelity, without doing Roth conversions.

 

[Exchme]

This was a Roth IRA to Roth IRA indirect rollover (back into the same Roth IRA), correct? In that case, the 1-365 day rule restriction on indirect rollovers applies. Have you done a qualified plan (like 401K) designated Roth funds indirect rollover to a Roth IRA, with tax withholding, in which case the 1-365 rule does not apply? I'm trying to figure my flexibility to manage taxes through rollovers or transfers to my Roth IRA at Fidelity, without doing Roth conversions.

Correct, I did a Roth to Roth, so I believe subject to the 1 per 365 day limit as Vanguard only allows 99% withholding and I didn't want any extra income in 2025. In 2026, I will be doing Roth Conversions and so will do withholding on a t-IRA to Roth conversion which, as I understand, it will not be subject to the 1/365 day limit.