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I did a Roth Conversion--Now What!


"I just moved about $6000 from a 401k I had with a previous employer to a new Roth IRA that I just opened. Two questions...hope both are simple!  1. Since it's a Roth IRA, when do I pay the taxes on this money?  When I pay my 2015 taxes?  2. I know that there's a limit of $5500 I can contribute to a Roth IRA each year. Does this money from my 401k count against that cap? Or can I still contribute an additional $5500 to this account over the course of the year?  Thanks!"

 Thank you for sending these questions my way, and I am happy to help.  You are correct regarding your first question that you will pay the tax on this Roth conversion when you pay your taxes for 2015.  I encourage you to consult your accountant to see if it might be required to make estimated payments this year.  My educated guess is that you would not have to, but I do not know your specific situation.  You should receive a Form 5498 at the end of the year detailing this conversion.  Even though you may not be too familiar with this form, it is similar to a 1099 form in that it is a report filed to the IRS and a copy is sent to you.  You then use this as you prepare your taxes or give to your accountant along with the rest of your tax information in early 2016.  This information will be used to fill out IRS Form 8606 when filing your taxes.

Regarding your second question, converting the $6000 from a 401(k) to a Roth IRA is considered a Roth Conversion and not a Roth Contribution.  Therefore, you are also eligible to make a Roth IRA contribution as well in 2015 provided you meet the other Roth IRA criteria.  If you are under 50, you cannot contribute more than $5500, but if you are over 50, you can contribute up to $6500 in 2015.

As always, I hope this was helpful.  You appear to have a good grasp on this stuff.  I appreciate you reaching out for some clarification and please feel free to submit any other questions you may have.  I am happy to help.