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SPIKEHAYES64
Level 2

IRA Conversion to Roth - Addl amount removed for tax payment

Moved $35,000 from IRA to Roth IRA, and $4,000 was withheld for federal taxes. Turbotax is telling me that I will pay a $400 penalty for the $4,000 withheld. I did a similar transaction last year, but I didnt have any penalties for withheld funds. My income was lower in 2019 which might be part of the problem, but what can i do to avoid the penalty?

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Accepted Solutions
Critter
Level 15

IRA Conversion to Roth - Addl amount removed for tax payment

Sorry but you took out $35K but only $31K made it to the ROTH ... the $4000 withheld for taxes is considered a taxable distribution AND it is subject to taxes and the penalty. 

 

To make the conversion complete you either has to NOT have any withholding  OR  you had to add $4000 out of your pocket to move to the ROTH to make up for the amount withheld.  (FYI ... the withholding was done probably because you touched the check ... if this was a trustee to trustee conversion no withholding would have been needed).   And it is now TOO LATE to make up the missing amount since the 60  day window has closed.  

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5 Replies
Critter
Level 15

IRA Conversion to Roth - Addl amount removed for tax payment

 
Critter
Level 15

IRA Conversion to Roth - Addl amount removed for tax payment

Sorry but you took out $35K but only $31K made it to the ROTH ... the $4000 withheld for taxes is considered a taxable distribution AND it is subject to taxes and the penalty. 

 

To make the conversion complete you either has to NOT have any withholding  OR  you had to add $4000 out of your pocket to move to the ROTH to make up for the amount withheld.  (FYI ... the withholding was done probably because you touched the check ... if this was a trustee to trustee conversion no withholding would have been needed).   And it is now TOO LATE to make up the missing amount since the 60  day window has closed.  

SPIKEHAYES64
Level 2

IRA Conversion to Roth - Addl amount removed for tax payment

Ok, thanks. Did the rules change, since this didnt seem to be a problem last year?

Critter
Level 15

IRA Conversion to Roth - Addl amount removed for tax payment

 
Critter
Level 15

IRA Conversion to Roth - Addl amount removed for tax payment

Nope  same rules forever ... look at the 1099-R form from last year ... did you also have withholding ?  If so you may have done something incorrectly and the IRS usually takes 2 years to catch the error. 

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