Pension Lump Sum rolled over to Roth IRA

[EN07]

Can an expert confirm that a pension lump sum rolled over to a Roth IRA is a taxable event?  Also, what is the terminology difference between "rolling over to a Roth IRA" and "converting to a Roth IRA"? 

[drc845443]

Hi there,

Yes - a pension lump sum rolled over to a Roth IRA is a taxable event. The funds you withdraw from your pension are considered taxable income in the year of the rollover, but future income and gains in the Roth IRA get the tax-free treatment .

A rollover to a Roth usually refers to when you move funds from a qualified retirement plan such as a pension fund, 401k, 403b to a Roth IRA or a designated Roth Account.

A  Roth conversion usually refers to when you move funds from a traditional IRA to a Roth IRA.

[EN07]

I believe I need to amend my 2020 Tax filing to include the pension lump sum payment.  I also need to amend the filing to include some business expense that I forgot to include when I filed my taxes.  Are these Amendments easy to do through TurboTax?

[EN07]

Your answer was super clear and helpful.  I wanted to thank you for your answer.

I was wondering what the tax rate of the Pension Plan amount will be.  Is it the same tax rate as regular income?

[a2h]

Are there any tax differences between a rollover and a conversion?

[Opus 17]

---

@EN07 wrote:

I believe I need to amend my 2020 Tax filing to include the pension lump sum payment.  I also need to amend the filing to include some business expense that I forgot to include when I filed my taxes.  Are these Amendments easy to do through TurboTax?

---

If you originally used Turbotax, filing an amendment is about the same complexity as filing an original return.  Use the same account, log in, and choose "file an amended return" from the list of things you can do.  You will want to read the instructions carefully and provably print them out so you can refer to them when they are off the screen.  There is no additional cost to amend if you paid to use Turbotax to file in the first place.

If you did not file with Turbotax, to file an amended return you would first have to prepare an original return that is identical to the return you originally filed.  "File" this return by telling Turbotax you will print and mail it (don't try to e-file it).  Then log out, log back in, and choose "amend".  You will have to pay the Turbotax fees to do this.

If you change your taxable income or deductions, you will probably also have to file an amended state income tax return. 

[Opus 17]

---

@a2h wrote:

Are there any tax differences between a rollover and a conversion?

---

The term "rollover" refers generally to any time you move money from one qualified retirement account to another account.  You can do a direct rollover (where the plan administrators transfer the funds directly) or an indirect rollover, where you get a check from plan A and deposit it to plan B.  You can only do indirect rollovers once per year, and there are some other rules that make direct rollovers to be much preferred.

A "conversion" is a special type of rollover that changes the tax status of the qualified funds.  For example, a Roth conversion would be when you do a rollover from a pre-tax account (like a 401k or traditional IRA) into an after-tax Roth IRA.   You have to pay income tax on the converted amount when you do the conversion.