Reply To: Withholding from Roth Conversion, Then Replacing w/h in TIRA

Home Fairmark Forum Retirement Savings and Benefits Withholding from Roth Conversion, Then Replacing w/h in TIRA Reply To: Withholding from Roth Conversion, Then Replacing w/h in TIRA

#4999
Alan S.
Participant

Yes, this is all about paying taxes via withholding to avoid any underpayment penalty while also avoiding the 2201 AI form. It does not have to be done in conjunction with a conversion, but certainly can be.

For example, if you want to convert 100k AND have 22k withheld, your conversion will actually be only 78k. To complete the conversion you must come up with 22k from your other funds and roll it into your Roth IRA within 60 days of receipt of the initial distribution. Since this is a conversion, the one rollover limit does not apply. However, if the 22k rollover is completed in the following calendar year (eg Jan, 2020), you will have a taxable conversion of 100k in 2019, but for purposes of the conversion 5 year holding period, you will have a 78k conversion in 2019 and a 22k conversion in 2020 as those were the years and amounts of the actual conversion contributions.

As for cash flow, your TIRA will have distributed 100k, your taxable account spending will be 22k, your Roth IRA will be increased by 100k and your withholding account will be increased by 22k. Therefore you are down 122k, at least until your taxes are filed.