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Glenn6006
New Member

Withdraw from 401K after 59 1/2 taxable when -> ROTH IRA?

In Jan 2020 I liquidated an old company 401K account.  I became 59 1/2 on Jan 1, 2020.

I understand this money not to be taxable (age > 59 1/2) and it doesn't appear to be so, initially.

However TT asks later if the funds went into a Roth IRA (they did, only incidentally) and now the amount shows as taxable both in the "Tax Due" field at the top of TurboTax and the summary page following income.

 

Is this a TurboTax processing mistake or is there a reason non-taxable moneys suddenly become taxable when put in to a ROTH IRA?

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Accepted Solutions
DavidD66
Employee Tax Expert

Withdraw from 401K after 59 1/2 taxable when -> ROTH IRA?

When you turned 59 1/2 it meant that withdrawals from 401(k)s and IRAs do not incur a 10% penalty for early withdrawal.  It has no effect on the taxation of the withdrawal.  Taking a distribution from your old 401(k) was a taxable event, unless you rolled the funds into a Traditional IRA within 60 days.  If you put the funds in a Roth IRA, the distribution is taxable as ordinary income.  But it is not subject to the 10% penalty you would have incurred had it happened before you turned 59 1/2. 

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1 Reply
DavidD66
Employee Tax Expert

Withdraw from 401K after 59 1/2 taxable when -> ROTH IRA?

When you turned 59 1/2 it meant that withdrawals from 401(k)s and IRAs do not incur a 10% penalty for early withdrawal.  It has no effect on the taxation of the withdrawal.  Taking a distribution from your old 401(k) was a taxable event, unless you rolled the funds into a Traditional IRA within 60 days.  If you put the funds in a Roth IRA, the distribution is taxable as ordinary income.  But it is not subject to the 10% penalty you would have incurred had it happened before you turned 59 1/2. 

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

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