pretax 401k conversion to personal roth account

[zcindy9075]

Hi,

I plan to move my previous 401k account (let's say it is $5000) to IRA account ($5000). Then, move the money to my ROTH account. If I put zero as my withholding while doing this conversion on Fidelity website, how should I pay for the tax for this conversion (let's say the tax for this conversion is $1000)? Could I put $5000 from IRA to ROTH (since withholding is $0), and draw $1000 from my bank account to pay for the tax when I file the tax return for the year, or should I take $1000 out of my ROTH account (similar to a distribution) and pay for the tax at the time to file the tax return for the year?

Please advise.

[VolvoGirl]

You can move the whole amount and separately send in an estimated payment to cover the tax.  That way it all gets moved to the ROTH.  Or if you have withholding taken out you can replace it by depositing other money into the ROTH within 60 days.    Either way.  

Here are the current 1040ES instructions and blank forms (where to mail is on page 4)
https://www.irs.gov/pub/irs-pdf/f1040es.pdf

Or you can pay on the IRS website. Be sure to pick 2025 1040ES payment
https://www.irs.gov/payments

[baldietax]

generally you will want to pay the tax from 'outside' money (taxable brokerage / bank account) not money from the retirement accounts or you are eroding your tax advantage by withdrawing from these accounts prematurely to pay tax, given all the hoops we go to get money into these accounts.

watch out for paying sufficient estimated tax during the year depending the size of the tax on the conversion, if you wait til you file your return you may have an underpayment penalty depending your situation.

[Opus 17]

Because of the way penalties and estimated tax payments are calculated, if you do the conversion before May 31, you will owe 1/4 of the tax amount on April 15, June 15, Sept 15 and January 15, 2026.  That means one payment is already overdue.  You can mitigate that by paying 2/4th of the tax (or more) by June 15, and using the annualized method on form 2210 to show that you don't owe a penalty.   If you do the conversion after June 1, you would want to pay at least 3/4th of the amount by Sept 15, and the rest by January 15.

The way around this is to have tax withheld, and make up the difference in the Roth IRA from the other funds you would have used to make the estimates.  For example, you convert $5000 and have $1250 withheld.  That means that only $3750 goes into the Roth.  You can then send $1250 to the Roth IRA from other funds within 60 days, and tell them it is a "rollover".  They don't have to know or care that it is part of the same rollover/conversion, that will be settled on your tax return.  Because of the way penalties are calculated, having the tax withheld eliminates the need to use the special form to eliminate the penalty.