No. of Recommendations: 0

If I convert all my 401(k) plans from former employers to Roth IRA's, when am I going to have to pony up the tax?

I understand that if I do it before 1999, I can spread the tax bite over 4 years. But when I do this, is it going to be immediately payable in cash, or will I file it on my 1998 tax return?

First, the former 401k monies must be in a tradtional IRA. You cannot convert to a Roth unless they are because a Roth may accept rollovers from a tradtional IRA or a Roth IRA only. When you convert the traditional IRA will determine when you have to declare the money as income and pay taxes. If you convert in 1998, then you have the option of declaring one-fourth of the 401k money as income this year, and one-fourth in each of the years 1999 through 2001. Convert in 1999, and you must declare the income entirely in 1999.

One further point is necessary. You must ensure you file estimated income tax payments if you will convert a significant amount. Otherwise, you may find yourself facing a penalty at the end of the year for under-withholding your taxes based on when during the year you received the "income" from the 401k rollover.

Print the post  


The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.