@kenlh2020 wrote:
Hello, just to clarify, the distribution from my Roth 401k was two checks, first check was a proceeds check and rolled directly to the Roth IRA. The second check, which apparently was my company's pre-tax match check. this check was supposedly "lost" for two months, so i had them send it to me. then I mistakenly deposited into the Roth IRA.
My understanding is i need to pay taxes on this 12K deposit mistake. which is fine, i will simply increase my federal & state withholding to cover the estimated taxes. I just want to make sure there is no penalty that needs to be address for exceeding the yearly contribution or is this still a legal transfer? or, should i withdraw the excess payment from the Roth IRA?
By depositing the pre-tax check into a Roth IRA, you completed a rollover--which also happens to be a special type of rollover also called a Roth conversion. You owe income tax because it was a conversion. But because it also counts as a type of rollover, it is not considered a contribution and does not impact your normal contribution limit. If you are concerned, you can contact the Roth IRA custodian and verify that they processed the check as a rollover/conversion and not as a contribution.
You don't want it to be a contribution, because if it is treated as a contribution and you remove it from the Roth IRA, then it counts as a withdrawal from the 401k. Then it is still subject to income tax plus a 10% penalty for early withdrawal, and you lose the tax-free growth of the Roth IRA. If the Roth IRA custodian did code it as a contribution, you need to show them proof that it was a rollover so they get the paperwork straight.
