I am 45 years old with very little set aside for retirement at this point. I have always been curious about the stock market and have witnessed some people who played the game right and retired early because they used the stock market. When I ask them, most said that they invested very little to start with, but their portfolio grew. I do have a significant amount of capital that is required to start up but I have no idea what strategies and direction I need to approach to help me make decent returns
A certified financial planner can help you (CFPs must be credentialed, but anyone can call himself/herself a financial advisor). Your bank might offer the services of a CFP to you for free. An easy way to invest while limiting potential losses while still having good growth potential is dollar cost averaged investments. If you do not already have a Roth IRA, ask your bank if they will set up one for you as a dollar cost averaged investment account. The stocks in the account are chosen by professionals who watch the market, and always spend the same amount on stock every month; that is how potential losses are limited. The cost of setting up such an account should be minimal.
On the 1099 R you showed at 3:52, it shows $16,600 withheld out of that distribution for Federal Tax. If the IRS deducted $16,600 why would you pay quarterly tax payments again?
Excellent explanation of all of the topics you covered, and superb strategy for avoiding an underpayment penalty. I subscribed to your channel. Thank you!
Excellent and concise video! Exactly what I needed as I complete Roth conversion. Also, cleared up my tax confusion regarding my Roth conversion of last year. Thank you, Eric!
Don’t play games with the IRS. Pay your taxes when they’re due. If you’re audited no one from TH-cam will be there to help you. Besides interest and penalties, the IRS can garnish your wages, place liens on your property and incarcerate you. Is it really worth it?
Dear Eric, thank you for this Excellent Hack! But could you please make a video when someone is getting a SSDI LUMP SUM for 5-7 years and does periodically convert from Rollover to ROTH IRA throughout the same year. What should they do to avoid Tax Penalties on the SSDI Lump Sum and how to estimate Rollover to ROTH conversions amount as to avoid IRMAA Tax SURCHARGES for MEDICARE Premiums plus any software you would recommend for Disabled Retirees who can't work past 58 due to Health?
What about safe harbor? Just pay 100%/110% of PY tax in four installments and avoid all underpayment penalties. Pay any excess you owe on 4/15. Why make things difficult?
For a Roth Conversion that is performed on June 1st is the entire tax due as part of the September 15th Estimated Quarterly Tax Payment or can it be split 50/50 between the September 15th and January 15th (of next year) Estimated Quarterly Tax Payments?
Sorry, but I don't think you are right. Roth conversions are considered on a tax year basis, not on the date of the conversion itself. In other words, the IRS makes no distinction whether you do the conversion on January 1 or December 31. The 1099-R that you receive from your brokerage firm doesn't have a date on it; it just has an amount, so the IRS doesn't even know what date you did the conversion and doesn't care. Given that, you might want to do the conversion early in the year to give your Roth money that much more time to grow, however if you miscalculate how much conversion to do, and later in the year you want to reverse so or all of the conversion, you can no longer do that because recharacterization was taken away under the TCJA tax law of 2017.
No, he explained all of that, and he’s right. The IRS expects you to pay taxes on the conversion on a quarterly basis, regardless of when the conversion occurred. If you did the conversion very late in the year, you can file form 2210 to explain why you didn’t pay quarterly as you went along.
i did a roth conversion last July with an estimated tax of about $5300. do i pay this by Sept 15 or do i split it between 9/15 and 1/15? i am waiting to hear from my accountant.
Hi Eric. If instead of taking an additional distribution from the IRA to withhold the tax, what if instead, when you do your Roth conversion in December, you withhold an appropriate amount of federal and state tax from the conversion to avoid tax penalties. Then you take money out of a taxable account and put the amount withheld for tax into the Roth IRA indicating that this money is an indirect rollover (aka 60 day rollover). This will make your Roth conversion whole. Would this have the same effect as the strategy you describe avoiding late payment and early withdrawal penalties? Thanks.
I have used tax estimate payments to pay taxes on Roth conversions. But this trick might get me out of a situation. If you are already retire I wonder if the 60 day roll over is still legal.
There are no age or income limitations on the 60-day rollover process, so this hack should work for anybody. The caveat that it’s only usable once per 12 months is key (not once per tax year).
It looks like, when taking the distribution for the purpose of withholding a, it must be done before the end of year. Is that absolute, or is January an option?
So I want to do a Roth conversion the last quarter of 2024. I intend to pay the taxes from a taxable account. My question is when do I file the IRS form 2210? It sounds like only after the IRS lets me know I owe a penalty. Doesn’t make any sense to me but then again what do I know.
You do the 2024 2210 AI at the same time you prepare your 2024 return. You don’t wait for the irs to tell you that you owe a penalty as this will make the process more complicated by requiring to file an amended 2024 return.
Regarding 60-day Rollover rules. Suppose I realize late in year my quarterly estimated tax payments will be insufficient. I arrange a 40k IRA distribution with 75% tax withholding. I assume I may rollover just the 10k I received back into an IRA. Can I deposit the $10,000 into the same IRA it came from? Will my 1095 show a 30k distribution, or 40k and additional forms will need to be filled out at tax time? Thanks for any help. I'll may to check the max % withholding Vanguard accommodates. 100%?
Thanks for the video! To make sure I understand the part of the hack about the 60-day rollover: Are you saying that this 60-day rule can be applied to the same IRA account? Is this really considered a rollover if you are taking a distribution from an IRA and then you put the money back in the same IRA? Would this also get rid of the 10% IRA distribution penalty on the withheld amount if you are under 59.5? Last question: Can this also be done for a large Roth conversion at year end if you didn’t make quarterly estimated payments throughout the year for that conversion in December? Would the money rolled over need to back in the IRA by Dec 31st of that year? Thanks very much in advance!
Many people are unsure about the exact amount for a Roth conversion, which complicates making quarterly estimated tax payments as per the IRS default assumptions. Most will determine the amount and timing at the actual conversion. I also don’t know how much I can convert while staying within my desired tax bracket. Therefore, why not just talk about Schedule AI and the Annualized Installment method at the outset, instead of explaining why everyone will face tax penalties?
Trust the Government to make this stupidly complicated! In order to make a conversion at the beginning of the year you had better be certain what your income id going to be for the whole year if you are trying to bump up against say an IRMAA or Capital Gain bracket limits!.. Geez!
The whole point of this video, seems to be the "get out of jail free card." This is to make a tax withholding withdrawal (5:07) from your IRA at the end of the year to pay the taxes on the earlier IRA withdrawal that was converted to a Roth IRA. He uses the example of the conversion happening earlier in the year to make the point that you'd have to be making quarterly tax payments. Surprisingly, he seems to make the point that even if you did the conversion late in the year, the IRS doesn't know when you did the conversion and would still expect that you needed to be making quarterly tax payments, even before the conversion (4:17). If you converted in the last quarter of the year, Form 2210 will show this so you avoid tax penalties for not paying quarterly taxes. Back to the example of your Roth conversion early in the year, you can escape the tax penalties for not paying taxes quarterly by making a tax withholding withdrawal from your IRA at the end of the year (5:07). Then you refund your IRA from savings with the 60-day rollover rule. This all seems to be about escaping the penalties. If you have the money in savings for the rollover, it seems like it might be easier to make the quarterly estimated tax payments from those savings. I can't see any real advantage to his strategy unless you screwed up, and it really is all about avoiding the penalties.
So it sounds like you could do conversions at any time during the year and be OK (no penalties) if you made the correct quarterly estimated tax payments. (a) one lump sum early/January, or (b) one lump sum late/December, or (c) several during the year. As long as you make correct amount quarterly estimated tax payments on your total annual income (conversions plus everything else) = pay estimated tax of 1/4 of your total annual tax every 3 months, then you wouldn't suffer any penalties. Or does this violate "pay as you go"? Thanks...
Just to be clear the money I use from my IRA to cover taxes won't be added to my taxable income for that tear provided I put it back within 6p days. Even if that 60 day period ends up in the following tax year.
@@jimdavis9581 I saw in another post that you can actually complete the 60-day rollover early in the next calendar year (January) and you just indicate in your tax return for the previous year December distribution as a rollover. The IRS will eventually receive receive from the custodian a 5948 for showing that the amount was rolled over back in.
if you do a large Roth conversion early in the year and make an estimated tax payment sufficient to meet the 110% Safe Harbor Rule, does that eliminate any possibility of a tax penalty since you've paid 110% of the previous years taxes?
Can you do 2 video explaining the following in more detail. At 3:25, what is the difference between the 20k tax and the four 5k tax payment? What changed. At 5:25, what is happening in the flow chart?
Tax withholding is not time sensitive. So you can do it anytime during the year and it provides the greater flexibility in comparison to the quarterly tax payment, especially if you have salary income. To avoid late payment penalty during the year of the Roth conversion, you can make sure that the current tax year withholding is 100% or 110% of your last year tax liability (safe harbor rule). It is good to know the IRA hack to achieve the tax withholding.
Since you would need to take a 2nd distribution from your Trad IRA (the 1st was the converted one) and withhold all of it to pay the tax on the conversion, you would have to re-pay the withheld amount back into the Trad IRA.
I’m a little confused. I transferred 8400 from my Vanguard Traditional Ira to a Fidelity Traditional Ira. Then transferred the 8400 from the Fidelity Traditional Ira to a Fidelity Ira. Do I need to make estimated tax payments now or can wait until end of the year when doing the taxes all together.
@@alrocky In the fidelity account the traditional ira is still there alongside the ira account that has the transferred funds in it. Less than $20 is left in the traditional ira.
great video, how about for conversions from 401K, any hacks? Don't want to really have money in my IRA because I use it to do backdoor Roth IRA, otherwise the I will have to deal with pro rata rule. Thanks
There is one potential hack! If some of the funds in your current 401k were rolled over into it from a previous employer, those funds may be considered “rollover” funds if your current 401k plan can segregate them that way as a separate source. Then, many 401k plans, but not all, allow for those “rollover” funds to be rolled over out at any time while you are still employed by the current employer. If so, you can request the custodian from your current 401k to do a partial rollover of those rollover funds to you Roth IRA, which is essentially a conversion. I did that for years!
Withholding have preferred tax status question. Do all withholding have this status, example, I have a pension, can I just increase (Additional) the amount withheld from my pension to cover the amount of tax I owe on my conversion into a Roth IRA?
I contributed to ROTH IRA account from my savings, now as ROTH Cont aren't deductible and my saving money was post tax, will I pay tax again on those contribution?
The IRS requires that RMD be taken BEFORE any Roth conversion so you may not do a Roth conversion early in the year and then do the RMD with withholding later in the year. You are also not allowed to take the RMD and then later put it back into the IRA. If you know what your estimated taxes will be, you can certainly do the RMD with withholding and then do the Roth conversion. In 2023 I did an early RMD and used the cash to pay off a loan, did a sizable Roth conversion and then in December did another IRA distribution for which almost all was withholding to pay taxes that would be due for 2023. A quirk in this transaction was that my broker required that some minimal percentage (1%) of the distribution had to be cash taken and not withholding.
I had the same question at first but this seems to be considered a rollover and not a new contribution. You don’t need earned income to do rollovers. Also in his example, he put back $20k, which is about 3x the annual limit of a contribution of new monies, which confirms that this is not a contribution but a rollover.
I don't even know what a "Withholding" is so this video didn't make a lot of sense. It was hard to follow because I am not familiar with the terminology.
What can be done if one takes an Ira to Roth conversion on the last trading day of the year, then pays the full estimated taxes in the first week of January… and has paid zero estimated taxes in the year of the distribution?
Thank you for the IRA rollover info. I had a capital gain sale earlier in the year and didn't understand the estimated tax rule. I performed a 100% withholding at the end of Dec and then filled the IRA back up a day later.
If you did the 100% withholding from an IRA distribution at the end of the year, how were you able to fill the IRA back up in just one day? If the money came from a taxable account you would have had to do it as a manual rollover by regular mail which would have taken a lot longer, and maybe not considered for the same year if received and applied by your custodian in January of the year after. If you just did an online transfer from your taxable account to your IRA, this would be considered a contribution of new money to the IRA and not a return via rollover.
I believe each spouse can do one 60-day rollover per year, as the IRS treats retirement funds as being owned by individual (as in Individual Retirement Acct). Check IRS Pub 590A.
I have a question about Withdrawing Roth IRA Conversions: I converted $30,000 from a 401(k) to a Roth IRA on July 1, 2013. Now I am 45 years old. Can I withdraw my Roth IRA Conversions without penalty?
You can pull out all of your roth contributions with out penalty since it was already taxed money. However, you will pay a 10% penalty on any earnings due to you being under 59 1/2. The contributions always come out first too so the penalty is on the last part (earnings) withdrawn.
I’m a little confused. This past March when I did my taxes my accountant said to leave my $2000 refund in until next year. He said this way when I do Roth conversions this year I will not get an underpayment penalty even though I am converting $50,000. Is this correct?
The minimum tax bracket is 10%. Even if you don’t have a penalty you’ll owe $3,000 at the absolute minimum. And state tax if your state has income taxes.
Why have we allowed such a convoluted tax mess to evolve? Capital gains, Dividends and Interest are not taxed quarterly and the IRS gets the paper trail on that income. With Roth conversions it's insane. My plan is to convert in Jan and send the estimates in Jan. Maybe that won't even pacify the tax monster.
In my case I know my target income including Roth conversions, but not necessarily how much i can convert, so i just pay quarterlies based on the total.
@@timtoolman9940 I estimated my total income for the year, and thus my tax liability, then subtracted any withholding, and divided the remainder into equal quarterly payments. Or at least that's the gist; I actually used a worksheet I found in Turbotax.I don't know if it came from them or from the IRS. The problem was that I knew in advance what my income needed to be (i.e. just below the IRMAA threshold), but I couldn't know how much I could safely convert to Roth until December, when I had a better handle on other income. When the time came, I converted enough Roth to top-up to my income target. Most of the quarterlies were already sent in by that point.
@@timtoolman9940 For this year I'll probably convert a relatively safe amount earlier in the year, and a second conversion in December to top up to this year's income target. But still do estimated payments based on the income target, as before.
What happens if you did this in Jan of 2022 and you are only 55. Wouldn't you have to pay a penalty on top of the taxes if you did a distribution to just pay the taxes? So if I converted 50k would I owe 10k taxes plus a penalty? If I overpaid with my W2 job would I still have to pay the penalty?
Oh no. My head hurts. 😩 I’ll have to watch again.
I learned I need to slow the speed of his audio every time.
😂 Agreed. This is one where I call "Uncle" and keep things managable.
I have watched it twice and I’m more confused. It’s entirely possible that this is being intentionally presented in a complicated manner.
Try James Canole. He talks fast too, but understandable info.
@@helenwood3199 Completely agree. James Canole, The Money Guy, and Rob Berger seem to have some of the clearest content.
I am 45 years old with very little set aside for retirement at this point. I have always been curious about the stock market and have witnessed some people who played the game right and retired early because they used the stock market. When I ask them, most said that they invested very little to start with, but their portfolio grew. I do have a significant amount of capital that is required to start up but I have no idea what strategies and direction I need to approach to help me make decent returns
@Jooste Constance Rebecca Buy index funds if you wanna be safe, though you are probably be better off just going to Vanguard or something for that
@White House Down
please I'm fascinated to ken who your broker is and how she can be reached?
@White House Down
Thanks for sharing, I'll look her up on google
God these scams are fckig ridiculous
A certified financial planner can help you (CFPs must be credentialed, but anyone can call himself/herself a financial advisor). Your bank might offer the services of a CFP to you for free. An easy way to invest while limiting potential losses while still having good growth potential is dollar cost averaged investments. If you do not already have a Roth IRA, ask your bank if they will set up one for you as a dollar cost averaged investment account. The stocks in the account are chosen by professionals who watch the market, and always spend the same amount on stock every month; that is how potential losses are limited. The cost of setting up such an account should be minimal.
On the 1099 R you showed at 3:52, it shows $16,600 withheld out of that distribution for Federal Tax. If the IRS deducted $16,600 why would you pay quarterly tax payments again?
We're about to get a huge IRA conversion "benefit" for anyone with stocks or stock funds in their IRA if the markets keep falling.
Excellent explanation of all of the topics you covered, and superb strategy for avoiding an underpayment penalty. I subscribed to your channel. Thank you!
Excellent and concise video! Exactly what I needed as I complete Roth conversion. Also, cleared up my tax confusion regarding my Roth conversion of last year. Thank you, Eric!
Another simple process is to withhold 20% with every distribution from taxable IRAs.
Oh that’s effing clever . Wow
Don’t play games with the IRS. Pay your taxes when they’re due. If you’re audited no one from TH-cam will be there to help you. Besides interest and penalties, the IRS can garnish your wages, place liens on your property and incarcerate you. Is it really worth it?
Yes, it's perfectly legal to do this if done within 60days and no more than once per year!
Which account am I makiing the tax-withholding withdraw from: the traditional or Roth IRA?
Dear Eric, thank you for this Excellent Hack! But could you please make a video when someone is getting a SSDI LUMP SUM for 5-7 years and does periodically convert from Rollover to ROTH IRA throughout the same year. What should they do to avoid Tax Penalties on the SSDI Lump Sum and how to estimate Rollover to ROTH conversions amount as to avoid IRMAA Tax SURCHARGES for MEDICARE Premiums plus any software you would recommend for Disabled Retirees who can't work past 58 due to Health?
What about safe harbor? Just pay 100%/110% of PY tax in four installments and avoid all underpayment penalties. Pay any excess you owe on 4/15. Why make things difficult?
For a Roth Conversion that is performed on June 1st is the entire tax due as part of the September 15th Estimated Quarterly Tax Payment or can it be split 50/50 between the September 15th and January 15th (of next year) Estimated Quarterly Tax Payments?
Sorry, but I don't think you are right. Roth conversions are considered on a tax year basis, not on the date of the conversion itself. In other words, the IRS makes no distinction whether you do the conversion on January 1 or December 31. The 1099-R that you receive from your brokerage firm doesn't have a date on it; it just has an amount, so the IRS doesn't even know what date you did the conversion and doesn't care.
Given that, you might want to do the conversion early in the year to give your Roth money that much more time to grow, however if you miscalculate how much conversion to do, and later in the year you want to reverse so or all of the conversion, you can no longer do that because recharacterization was taken away under the TCJA tax law of 2017.
I agree I have never heard of this quarterly tax payment requirement on IRA conversion to a Roth. Taxes owed are paid when filing your 1040 taxes.
No, he explained all of that, and he’s right. The IRS expects you to pay taxes on the conversion on a quarterly basis, regardless of when the conversion occurred. If you did the conversion very late in the year, you can file form 2210 to explain why you didn’t pay quarterly as you went along.
i did a roth conversion last July with an estimated tax of about $5300. do i pay this by Sept 15 or do i split it between 9/15 and 1/15? i am waiting to hear from my accountant.
Hi Eric. If instead of taking an additional distribution from the IRA to withhold the tax, what if instead, when you do your Roth conversion in December, you withhold an appropriate amount of federal and state tax from the conversion to avoid tax penalties. Then you take money out of a taxable account and put the amount withheld for tax into the Roth IRA indicating that this money is an indirect rollover (aka 60 day rollover). This will make your Roth conversion whole. Would this have the same effect as the strategy you describe avoiding late payment and early withdrawal penalties? Thanks.
Great info: A safety net in case I mess up next year. (I'll make sure to pay quarterly, but it is nice to know I have options).
Does this apply with doing a Roth conversion ladder? The info out there for FIRE is that you would pay taxes when you file taxes the following year.
What if you just pay the expected tax rate as you withdraw from a tax deferred account does this not satisfy the quarterly payment???
I have used tax estimate payments to pay taxes on Roth conversions. But this trick might get me out of a situation. If you are already retire I wonder if the 60 day roll over is still legal.
There are no age or income limitations on the 60-day rollover process, so this hack should work for anybody. The caveat that it’s only usable once per 12 months is key (not once per tax year).
Rollover and conversion are two different actions with different rules.
I have never had penalties on a 100k conversion done in say april but paid evenly in quarterly estimates.
That’s because that’s what you’re supposed to do!
It looks like, when taking the distribution for the purpose of withholding a, it must be done before the end of year. Is that absolute, or is January an option?
End of the year
So I want to do a Roth conversion the last quarter of 2024. I intend to pay the taxes from a taxable account.
My question is when do I file the IRS form 2210? It sounds like only after the IRS lets me know I owe a penalty. Doesn’t make any sense to me but then again what do I know.
You do the 2024 2210 AI at the same time you prepare your 2024 return. You don’t wait for the irs to tell you that you owe a penalty as this will make the process more complicated by requiring to file an amended 2024 return.
Regarding 60-day Rollover rules. Suppose I realize late in year my quarterly estimated tax payments will be insufficient.
I arrange a 40k IRA distribution with 75% tax withholding. I assume I may rollover just the 10k I received back into an IRA.
Can I deposit the $10,000 into the same IRA it came from?
Will my 1095 show a 30k distribution, or 40k and additional forms will need to be filled out at tax time?
Thanks for any help. I'll may to check the max % withholding Vanguard accommodates. 100%?
Thanks for the video! To make sure I understand the part of the hack about the 60-day rollover: Are you saying that this 60-day rule can be applied to the same IRA account? Is this really considered a rollover if you are taking a distribution from an IRA and then you put the money back in the same IRA?
Would this also get rid of the 10% IRA distribution penalty on the withheld amount if you are under 59.5?
Last question: Can this also be done for a large Roth conversion at year end if you didn’t make quarterly estimated payments throughout the year for that conversion in December? Would the money rolled over need to back in the IRA by Dec 31st of that year?
Thanks very much in advance!
And stuff like this is why I hired a CPA and CFA.
Many people are unsure about the exact amount for a Roth conversion, which complicates making quarterly estimated tax payments as per the IRS default assumptions. Most will determine the amount and timing at the actual conversion. I also don’t know how much I can convert while staying within my desired tax bracket. Therefore, why not just talk about Schedule AI and the Annualized Installment method at the outset, instead of explaining why everyone will face tax penalties?
Trust the Government to make this stupidly complicated! In order to make a conversion at the beginning of the year you had better be certain what your income id going to be for the whole year if you are trying to bump up against say an IRMAA or Capital Gain bracket limits!.. Geez!
The whole point of this video, seems to be the "get out of jail free card." This is to make a tax withholding withdrawal (5:07) from your IRA at the end of the year to pay the taxes on the earlier IRA withdrawal that was converted to a Roth IRA.
He uses the example of the conversion happening earlier in the year to make the point that you'd have to be making quarterly tax payments. Surprisingly, he seems to make the point that even if you did the conversion late in the year, the IRS doesn't know when you did the conversion and would still expect that you needed to be making quarterly tax payments, even before the conversion (4:17).
If you converted in the last quarter of the year, Form 2210 will show this so you avoid tax penalties for not paying quarterly taxes.
Back to the example of your Roth conversion early in the year, you can escape the tax penalties for not paying taxes quarterly by making a tax withholding withdrawal from your IRA at the end of the year (5:07).
Then you refund your IRA from savings with the 60-day rollover rule.
This all seems to be about escaping the penalties. If you have the money in savings for the rollover, it seems like it might be easier to make the quarterly estimated tax payments from those savings. I can't see any real advantage to his strategy unless you screwed up, and it really is all about avoiding the penalties.
So it sounds like you could do conversions at any time during the year and be OK (no penalties) if you made the correct quarterly estimated tax payments. (a) one lump sum early/January, or (b) one lump sum late/December, or (c) several during the year. As long as you make correct amount quarterly estimated tax payments on your total annual income (conversions plus everything else) = pay estimated tax of 1/4 of your total annual tax every 3 months, then you wouldn't suffer any penalties. Or does this violate "pay as you go"? Thanks...
Just to be clear the money I use from my IRA to cover taxes won't be added to my taxable income for that tear provided I put it back within 6p days. Even if that 60 day period ends up in the following tax year.
You would need to make the rollover back to your IRA in the same year or you will have additional taxable income!
@@jimdavis9581 I saw in another post that you can actually complete the 60-day rollover early in the next calendar year (January) and you just indicate in your tax return for the previous year December distribution as a rollover. The IRS will eventually receive receive from the custodian a 5948 for showing that the amount was rolled over back in.
if you do a large Roth conversion early in the year and make an estimated tax payment sufficient to meet the 110% Safe Harbor Rule, does that eliminate any possibility of a tax penalty since you've paid 110% of the previous years taxes?
Can you do 2 video explaining the following in more detail.
At 3:25, what is the difference between the 20k tax and the four 5k tax payment? What changed.
At 5:25, what is happening in the flow chart?
Tax withholding is not time sensitive. So you can do it anytime during the year and it provides the greater flexibility in comparison to the quarterly tax payment, especially if you have salary income. To avoid late payment penalty during the year of the Roth conversion, you can make sure that the current tax year withholding is 100% or 110% of your last year tax liability (safe harbor rule). It is good to know the IRA hack to achieve the tax withholding.
If I rollover from Traditional to Roth, Do I pay/deposit back withheld amount into Traditional or Roth?
Since you would need to take a 2nd distribution from your Trad IRA (the 1st was the converted one) and withhold all of it to pay the tax on the conversion, you would have to re-pay the withheld amount back into the Trad IRA.
The 2nd distribution from tIRA is withheld for tax and the indirect 60 day rollover deposit goes into the Roth IRA.
If you convert nondeductible funds placed into ira and file form 8606, this videos message does not apply, correct?
OK this is insanely complex to me. Should I engage a Fiduciary Agent? I have my holdings in Fidelity.
I’m a little confused. I transferred 8400 from my Vanguard Traditional Ira to a Fidelity Traditional Ira. Then transferred the 8400 from the Fidelity Traditional Ira to a Fidelity Ira. Do I need to make estimated tax payments now or can wait until end of the year when doing the taxes all together.
Did you convert the $8,400 Fidelity t-IRA to $8,400 Roth IRA?
@@alrocky In the fidelity account the traditional ira is still there alongside the ira account that has the transferred funds in it. Less than $20 is left in the traditional ira.
@@MrFoxfire510 From your description all you've done is move traditional IRA accounts to another traditional IRAs so there is no taxable event.
Well done. Fabulous hack.
great video, how about for conversions from 401K, any hacks? Don't want to really have money in my IRA because I use it to do backdoor Roth IRA, otherwise the I will have to deal with pro rata rule. Thanks
There is one potential hack! If some of the funds in your current 401k were rolled over into it from a previous employer, those funds may be considered “rollover” funds if your current 401k plan can segregate them that way as a separate source. Then, many 401k plans, but not all, allow for those “rollover” funds to be rolled over out at any time while you are still employed by the current employer. If so, you can request the custodian from your current 401k to do a partial rollover of those rollover funds to you Roth IRA, which is essentially a conversion. I did that for years!
Withholding have preferred tax status question. Do all withholding have this status, example, I have a pension, can I just increase (Additional) the amount withheld from my pension to cover the amount of tax I owe on my conversion into a Roth IRA?
yes
I contributed to ROTH IRA account from my savings, now as ROTH Cont aren't deductible and my saving money was post tax, will I pay tax again on those contribution?
No, you should not owe further tax, not now, nor when you eventually withdraw the money from the Roth. Caveat: I am not a financial professional.
The IRS requires that RMD be taken BEFORE any Roth conversion so you may not do a Roth conversion early in the year and then do the RMD with withholding later in the year. You are also not allowed to take the RMD and then later put it back into the IRA. If you know what your estimated taxes will be, you can certainly do the RMD with withholding and then do the Roth conversion. In 2023 I did an early RMD and used the cash to pay off a loan, did a sizable Roth conversion and then in December did another IRA distribution for which almost all was withholding to pay taxes that would be due for 2023. A quirk in this transaction was that my broker required that some minimal percentage (1%) of the distribution had to be cash taken and not withholding.
Lots of people are doing Roth conversions well before the RMD years
You still have to pay the taxes? Hack I do not think so?
The IRA Hack? Can one do the "IRA Rollover" replacing the distribution if retired or not working and does not have earned income that year?
I had the same question at first but this seems to be considered a rollover and not a new contribution. You don’t need earned income to do rollovers. Also in his example, he put back $20k, which is about 3x the annual limit of a contribution of new monies, which confirms that this is not a contribution but a rollover.
Should I take social security at 62 if by 67 I hit the first cliff of the social security tax?
I don't even know what a "Withholding" is so this video didn't make a lot of sense. It was hard to follow because I am not familiar with the terminology.
If you take a withdrawal from an IRA, you can specify how much goes to the IRS for taxes (=withholding). Similar to a paycheck withholding.
Love your videos, could you do one on Net Investment Income Tax and Roth Conversions
What can be done if one takes an Ira to Roth conversion on the last trading day of the year, then pays the full estimated taxes in the first week of January… and has paid zero estimated taxes in the year of the distribution?
Your fine if you did that, since the distribution was all done in the 4th qtr.
Thank you for the IRA rollover info. I had a capital gain sale earlier in the year and didn't understand the estimated tax rule. I performed a 100% withholding at the end of Dec and then filled the IRA back up a day later.
If you did the 100% withholding from an IRA distribution at the end of the year, how were you able to fill the IRA back up in just one day? If the money came from a taxable account you would have had to do it as a manual rollover by regular mail which would have taken a lot longer, and maybe not considered for the same year if received and applied by your custodian in January of the year after. If you just did an online transfer from your taxable account to your IRA, this would be considered a contribution of new money to the IRA and not a return via rollover.
“You can only use once per year”. If married filing jointly- can the spouses alternate years?
I believe each spouse can do one 60-day rollover per year, as the IRS treats retirement funds as being owned by individual (as in Individual Retirement Acct). Check IRS Pub 590A.
I have a question about Withdrawing Roth IRA Conversions: I converted $30,000 from a 401(k) to a Roth IRA on July 1, 2013. Now I am 45 years old. Can I withdraw my Roth IRA Conversions without penalty?
you should watch this video by Rob Berger--The Two 5-Year Roth IRA Rules Explained | Here's How They Work, good luck
You can pull out all of your roth contributions with out penalty since it was already taxed money. However, you will pay a 10% penalty on any earnings due to you being under 59 1/2. The contributions always come out first too so the penalty is on the last part (earnings) withdrawn.
Feels like good info here, but I couldn’t understand any of it.
Ha, just slow down the video and listen to it again and again and you will understand it.
Only if you can still contribute to an IRA ! If you are retired, you can no longer contribute to an IRA !
You can do Roth conversions there's no work income requirement as there is for IRA contributions.
I’m a little confused. This past March when I did my taxes my accountant said to leave my $2000 refund in until next year. He said this way when I do Roth conversions this year I will not get an underpayment penalty even though I am converting $50,000. Is this correct?
The minimum tax bracket is 10%. Even if you don’t have a penalty you’ll owe $3,000 at the absolute minimum. And state tax if your state has income taxes.
@@jameswitte5676 thank you. I was worried about a potential penalty in addition to the taxes I will owe.
@@joycewright5386 I don’t know how the penalties are assessed. I’m sure your account knows.
Wow I was watching another video & they never mentioned the 2210 form. Thanks for another great video.
First I heard of this, as well!
Why have we allowed such a convoluted tax mess to evolve? Capital gains, Dividends and Interest are not taxed quarterly and the IRS gets the paper trail on that income. With Roth conversions it's insane. My plan is to convert in Jan and send the estimates in Jan. Maybe that won't even pacify the tax monster.
In my case I know my target income including Roth conversions, but not necessarily how much i can convert, so i just pay quarterlies based on the total.
@@captsorghum do you divide the years planned conversion into quarterly and pay the tax on that amount in that quarter? I'm thinking I'll do that.
@@timtoolman9940 I estimated my total income for the year, and thus my tax liability, then subtracted any withholding, and divided the remainder into equal quarterly payments. Or at least that's the gist; I actually used a worksheet I found in Turbotax.I don't know if it came from them or from the IRS.
The problem was that I knew in advance what my income needed to be (i.e. just below the IRMAA threshold), but I couldn't know how much I could safely convert to Roth until December, when I had a better handle on other income. When the time came, I converted enough Roth to top-up to my income target. Most of the quarterlies were already sent in by that point.
@@timtoolman9940 For this year I'll probably convert a relatively safe amount earlier in the year, and a second conversion in December to top up to this year's income target. But still do estimated payments based on the income target, as before.
Excellent video.
What happens if you did this in Jan of 2022 and you are only 55. Wouldn't you have to pay a penalty on top of the taxes if you did a distribution to just pay the taxes? So if I converted 50k would I owe 10k taxes plus a penalty? If I overpaid with my W2 job would I still have to pay the penalty?
Check to see if the Rule of 55 applies to you to avoid the 10% penalty
Nope, no penalty if you add it back. It's like it never happened.