Hi! I have 5k in a old 403b MF (total mkt) that I would like to roll over into a self directed Roth. (Just joined Hidden Gems) Do I transfer the whole amt to the trad IRA first? I am over 50; can I only roll over 3,500? Can I pay the taxes for the Roth from the 5k or do I have to pay out of ordinary income? I'm sorry this is confusing, but I am confused! Thanks, Susie Q
The best approach is to contact the custodian you have in mind for the Roth and ask them. Usually they have forms for you to fill out and will take care of the details for you.No the $3500 limit is the limit of annual contributions. It does not apply to rollovers at all. So you can do the rollover in any amount you like (as long as you are below income limitations for the Roth conversion) and still make a separate $3500 contribution to your IRA or Roth IRA the same year.The Roth conversion is usually just a paper transaction at your custodians. They are the ones who will have the details of how. Usually it is to your advantage to pay the income taxes on the Roth conversion with non-account funds. If you use funds from the account, you will probably be assessed a 10% penalty and taxes on those funds (but that will probably be less than $150).I have not done a Roth conversion personally, but I would expect that the custodian will do the conversion and send you a 1099 advising the IRS that you owe taxes on this amount of funds. It is your responsibility to file estimated taxes and pay that amount or have it deducted from your paycheck at work, or pay it at tax time at end of the year. So you have several options to pay. Estimated taxes are technically due at end of the quarter, but you still have quite a bit of time to work out the details. And for the amounts you are talking about you can even sell stocks at a loss and take up to $3K off current earnings. That too would wipe out your tax liability on the Roth conversion.
Susie Q,I agree with Paulleckler that you should contact a representative where you intend to hold the Roth account.However I am pretty sure that you will first have to rollover into a Traditional IRA, and then convert that to a Roth, but the rep should be able to handle all of this for you. As Paul stated you can rollover the whole amount. You can't pay the taxes out of the Roth, because you can't withdraw funds from a Roth conversion until 5 years have elapsed. I also wouldn't advise paying it out of the Traditional IRA because you will have to pay more taxes plus a 10% penalty (UGH).Pay the taxes out of something else--it'll be worth it.2old
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