401k rollover and Roth conversion

[village1914]

1) My wife did a 401K rollover from her old company to her Vanguard rollover IRA in April 2024. Would the amount from a 401k rollover to IRA be added to our AGI or taxable income? Also, is it okay for her to do a Roth IRA conversion in a same year?

2) I am 65-year-old and my wife is 70. We plan to do a Roth IRA conversion in 4th quarter of this year.  Should we make a conversion from her IRA account first?

3) How / when should I pay taxes to avoid any potential underpayment of tax penalty after Roth IRA conversion?

Thank you!

[marctu]

So, in order:

(1)  Assuming the 401(k) to IRA rollover was of pre-tax dollars, adjusted gross income should not change as a result of the rollover, since the Rollover IRA is pre-tax. Now AGI would increase if you choose to convert this to a Roth IRA in the same year.  There is nothing tax wise preventing you from doing this other then the tax implications of it.  

(2)  Due to you being five years younger, if you are going to do any conversion to a Roth IRA, it would most likely be beneficial for be done from your wife's IRA due to RMD being a factor for her earlier.   This though had to be considered in the context of looking at all your retirement assets and for that matter all your assets.   While the RMD reason is a tax reason, there are other considerations that go beyond tax matters.  

(3) If you choose to do a conversion in the 4th quarter, I would strongly encourage you to make a fourth quarter estimated tax payment based upon the marginal income tax impact of the conversion to both Federal and State, if applicable.   For example, let's say adjusted gross income prior to the conversion is $150,000.   After subtracting the standard deduction and the additional increment for age, you are both in the 22% tax bracket.   If you do a $10K conversion the impact on the Federal is $2,200.  

See this for the 2024 marginal income tax rates:

Tax Rate	For Single Filers	For Married Individuals Filing Joint Returns	For Heads of Households
10%	$0 to $11,600	$0 to $23,200	$0 to $16,550
12%	$11,600 to $47,150	$23,200 to $94,300	$16,550 to $63,100
22%	$47,150 to $100,525	$94,300 to $201,050	$63,100 to $100,500
24%	$100,525 to $191,950	$201,050 to $383,900	$100,500 to $191,950
32%	$191,950 to $243,725	$383,900 to $487,450	$191,950 to $243,700
35%	$243,725 to $609,350	$487,450 to $731,200	$243,700 to $609,350
37%	$609,350 or more	$731,200 or more	$609,350 or more

Source: Internal Revenue Service, "Revenue Procedure 2023-34."

Thank you for the opportunity to answer your questions @village1914 

All the best,

Marc T.

TurboTax Live Tax Expert