Tax on Conversion of 457b Plant to Roth IRA
I have a 457b Plan through my government employer. I am 65 years of age and want to work two more years.
If I convert the 457b to a Roth IRA, will that amount of the conversion be taxed together with my salary or separately ? My salary is in the 22% tax bracket and my 457b falls in the 12% tax bracket.
If the conversion is done this year, will the tax on it be paid this year separately (if I file my income tax before the conversion), combined with this year’s income tax (if I file the income tax after conversion), or paid as a tax next year ?
Also, may the tax on the conversion be paid to the IRS on a payment plan spread out over xxx years ?
Thank you for your assistance.
Terry Says
OK, I’m not an expert on this, but will try to give you some guidance. I suggest you go to TurboTax live to get specific advice for your situation.
The tax on the conversion is considered ordinary income to you in the year of the conversion.
So if you convert in 2020, it will be added to your ordinary income, perhaps raising your bracket and impacting other benefits.
At the time of the conversion, you can ask for Federal income taxes to be withheld. Or you can follow the rules and pay quarterly over the year so that 90% of taxes due are paid by next year’s filing deadline.
You should have money outside the retirement plan to pay the taxes. And if you are still working, which isn’t clear in your post, you need to find out whether you are allowed by your employer to rollover your plan into an IRA Rollover Account — a traditional account.
THEN, the next step would be to do a conversion from traditional to Roth. I’m not sure that even if allowed to do a rollover, your current employer can handle the Roth conversion.
Please discuss ALL the implications of this on your own tax situation with your CPA.
