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I have some money in a former employer's 401k program that I am in the process of rolling over to a Rollover (Traditional) IRA. My question is, if I decide to convert this into a Roth, and it gets taxed, does the tax money get taken out of the amount in the IRA, or do I just owe the taxes come tax time next year?

****It would be best to have your former employer do a direct rollover so that no tax need be withheld. Should you take the funds first, your employer would have to withhold 20% for taxes. If you can't come up with that 20%, when you make the rollover to your new regular IRA, you would have to pay a 10% penalty tax, in addition to regular tax, on any amount you couldn't cover to make your plan whole. If you later rollover to a Roth, it would be best to pay the tax up front, out of your other funds, or (depending on the size of the rollover), make estimated tax payments throughout the year. Uncle Sam wants his money up front. If you have a sizeable tax that is going to be due, and don't pay it in the form of estimated tax payments or withholding tax, you could be charged a penalty for underpayment of tax.

Hope I have answered your question and it doesn't sound like babble. If it does, c'mon back 'n I'll try to do better!=:)

The money will not be taken out to pay the tax. If it were taken out of your distribution (and you couldn't replace it), you could be exposed to a penalty on that amount, and you would have to pay income tax on it as well. If you are going to pay the tax out of your own funds, make quarterly payments or have extra money withheld from your pay. Not doing so could expose you to a penalty for underpayment of taxes!

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