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When this is done - is the roll over amount taxed at 20% (no extra 10% penalty since I'm over 50 1/2) or is the amount added to your current yearly gross income therefore raising your tax percentage level because of the larger AGI?
When are those taxes due? At that current years tax filing or must it be paid up front? If the latter, can the tax be paid after the rollover is done and use money from that rollover?
It's not much, just half of my 401k balance, say around $100,000. I'd like for half my 401k savings to be a bit more liquid at this time.
there is no age restriction on conversions.. there were income restrictions but for now they have been removed.
some warnings.
it all gets added to your income and what ever your income level is thats the tax you pay. that tax cant come out of the 401k money or there is taxes and a penalty on it if your under 59-1/2. you must have the money outside in your taxable accounts.
one huge caveat. by adding to your taxable income its possible to hit a level that triggers the amt tax penalty..
that will blow you out of the water and make this the worst move you ever did.
you can split it between 2011 and 2012 right now as far as what you owe.
personally as most here know im not a roth lover except if you have enough dough to have alot left over for heirs.
Last edited by mathjak107; 06-14-2011 at 05:17 PM..
Curious if people making the conversion use a tax accountant or do it alone - and if you do use an accountant, would a franchise type of accountant (ie HR Block) suffice?
I'm considering handing over my 401(k) to a mutual fund family like Vanguard then converting to a ROTH over several years (5-7 yrs), and paying taxes each of those years. (ps, I'm well under 59 yrs of age).
I personally would not trust a franchise type tax person for advice,
Mostly they are data entry clerks, they type what you tell them into there software program, Have been trained to asks some questions about you and your return, but that is limited. Mostly they 'follow' the prompts/scripts that there software gives them.
But to your question, I would 'convert' as much as you can each year till the $'s amount takes you into the next tax bracket. (a side question is do you think tax rates (yours/globally) will go up in the future), If you think they will go up, you want to convert more now.
I personally would not trust a franchise type tax person for advice,
Mostly they are data entry clerks, they type what you tell them into there software program, Have been trained to asks some questions about you and your return, but that is limited. Mostly they 'follow' the prompts/scripts that there software gives them.
But to your question, I would 'convert' as much as you can each year till the $'s amount takes you into the next tax bracket. (a side question is do you think tax rates (yours/globally) will go up in the future), If you think they will go up, you want to convert more now.
Good advice on the tax preparer.
Re: taxes. I expect that the taxes will increase in the future only because of our government's financial situation (debt). But as far as my income, I don't expect that I will be in a higher bracket due to a higher income from this point forward. I'm leaning toward converting portions over the period of several years - just enough each year to keep me in the lowest tax bracket possible.
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