Ask Terry Questions Back door Roth Tax implications

Back door Roth Tax implications

By Terry Savage on November 29, 2023 | Financial Planning / Retirement

I am 65 and plan to move money from my 401k to a Roth account to reduce my RMD amounts when I turn 73.

I assume the amount I move from 401k to Roth considered income by the US government, yes? So any other income (salary, dividends, interest, capital gains, etc..) is added to the 401k-to- Roth amount and will be treated as income, correct?

Since it’s a back door method will I get a US Tax form from my 401k indicating the taxable amount?
And then can I add this amount using Tax S/w (Turbo Tax) to my yearly income? I heard some Tax S/W do not handle this 401k-to-Roth transfer since it’s considered a back door (loop hole) method.

If not how should I handle the this taxable event? Can I just add as miscellaneous income?

Please advise.

Thanks for your help,

Terry Says

This is where you should seek the advice of a good tax advisor — beyond TurboTax.
This conversion will impact a lot of stuff — including your Medicare Part B premiums!

Yes, the conversion will generate a tax bill on the amount converted — It willall be ordinary income.
And have you checked with your employer as to whether they will facilitate this conversion. Most require a rolloer of your 403(b) plan to a new custodian as a traditional IRA — and THEN you can do the conversion to a Roth IRA.
So get your ducks in order before you proceed down this path.

Remember, you will owe a lot of taxes andit will soak up a lot of your free cash, or the taxes must be taken out of the rollvoer, which sort of defeats the purpose!

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