Tax Liability

[JUSTLIKEKNOT]

I lost my job in 2020, I was given the wrong advise on what to do with my 401K.  It was rolled over into a Roth IRA instead of a traditional IRA.  Now I owe over $30,000.00 in taxes.  Is there anything I can do?

[dmertz · Accepted solution]

There is nothing you can do to eliminate this taxable income from your 2020 tax return.  The changes to the tax code made by the SECURE Act make such a taxable rollover irrevocable.

You might be able to establish a payment plan with the IRS if you are unable to pay the tax bill:

https://www.irs.gov/payments/payment-plans-installment-agreements

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You can take $30,000, or less, out of your Roth IRA to pay your tax.

After subtracting your total contributions, penalty on early withdrawal of Roth earnings is another 10%.

Contributions come out first, then earnings if any.

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Put your Roth money into a Self-directed Roth IRA brokerage account.

Invest carefully.

You will come out ahead in the long run,

and you will be thanking that advisor.

[dmertz]

If JUSTLIKEKNOT's Roth IRA(s) consist only of this converted amount and earnings, and is under age 59½, taking $30,000 out of the Roth IRA would result in a $3,000 early-distribution penalty.

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He did not say the converted amount, nor how much he contributed to his 401K