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HL1
Returning Member

Roth Conversion with Tax Withheld

Did a Roth Conversion from Traditional IRA with 10% tax withheld, received 1099R the gross distribution and taxable amount shows the conversion amount of $2000, tax withheld of $200.  The actual deposit to Roth account was $1800.  When enter this information in TT.  Need some clarification on the TT interview questions. Which answer would apply:  

  1. Yes, added $200 to the $1800 got (total of $2000) 
  2. No, didn't add $200 to the $1800 got
1 Best answer

Accepted Solutions
TomD8
Level 15

Roth Conversion with Tax Withheld

If you used the funds from the conversion to pay the taxes, then you didn't "add the $200."  In effect, you converted $1800 and took out $200 to pay the tax. That's why the actual deposit to your Roth was only $1800.

If you had converted the entire $2,000 and paid the $200 tax bill with outside funds, that would be "adding" the $200.

If you're under 59 1/2, you'll incur the 10% withdrawal penalty on the $200 you didn't convert.

This is a good example of why it's better to avoid using the funds from a Roth conversion to pay the tax on the conversion. 

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

View solution in original post

1 Reply
TomD8
Level 15

Roth Conversion with Tax Withheld

If you used the funds from the conversion to pay the taxes, then you didn't "add the $200."  In effect, you converted $1800 and took out $200 to pay the tax. That's why the actual deposit to your Roth was only $1800.

If you had converted the entire $2,000 and paid the $200 tax bill with outside funds, that would be "adding" the $200.

If you're under 59 1/2, you'll incur the 10% withdrawal penalty on the $200 you didn't convert.

This is a good example of why it's better to avoid using the funds from a Roth conversion to pay the tax on the conversion. 

**Answers are correct to the best of my ability but do not constitute tax or legal advice.

View solution in original post

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