Tax Question

[maat55]

I need help. I am filing form 8606 of 1040.

I have elected to split file the rollover between 2011 & 2012, but I had 25% of the rollover held out.

My question is: Do I apply the withholdings evenly later or can I apply it to 2010?

[SnoopyCool]

Look at lines 7, 19 and 24. It looks like you can split or take now.

[maat55]

Originally Posted by SnoopyCool

Look at lines 7, 19 and 24. It looks like you can split or take now.

I'm not finding where form 8606 instructs what to do with withholdings.

[SnoopyCool]

Was the 25% witheld a distribution to you?

[MonkeyMama]

Ouch! You took the tax money from the IRA? The tax withholding portion would be a distribution (with taxes/penalties). Okay, so obviously you are paying taxes on the conversion, but the withholding portion will be slapped with a penalty.

Anyway, the withholding taken in 2010 has to be applied to 2010.

[SnoopyCool]

On second thought, I agree with MonkeyMama. Unless you took the distribution for something like a qualified first time homebuyer, you're going to pay a penalty on the full amount. If I'm not mistaken, any medical expenses over 7.5% of your income can offset the amount taxed on that distribution, but I'll have to defer that to someone with more tax knowledge.

[creditcardfree]

Originally Posted by MonkeyMama

Ouch! You took the tax money from the IRA? The tax withholding portion would be a distribution (with taxes/penalties). Okay, so obviously you are paying taxes on the conversion, but the withholding portion will be slapped with a penalty.

Anyway, the withholding taken in 2010 has to be applied to 2010.

I thought the same thing when I read this. Can the OP, make up for the withholding by getting that money into the Roth before April 15th?

OP, you might call the company you did the conversion with to see what your options are for correcting this.

When you do a conversion in the future, you need to be able to pay the taxes out of regular income, rather from the conversion itself. Because as you now know any withholding is considered a distribution from the ira.

[maat55]

Originally Posted by MonkeyMama

Ouch! You took the tax money from the IRA? The tax withholding portion would be a distribution (with taxes/penalties). Okay, so obviously you are paying taxes on the conversion, but the withholding portion will be slapped with a penalty.

Anyway, the withholding taken in 2010 has to be applied to 2010.

What was I thinking. I'm guessing that I will have to show the tax withholding as income, add the penalty and apply the withholding to this years estimates?

[maat55]

Originally Posted by creditcardfree

I thought the same thing when I read this. Can the OP, make up for the withholding by getting that money into the Roth before April 15th?

OP, you might call the company you did the conversion with to see what your options are for correcting this.

When you do a conversion in the future, you need to be able to pay the taxes out of regular income, rather from the conversion itself. Because as you now know any withholding is considered a distribution from the ira.

Good idea, but I think I only had 60 days to do so. I made the conversion earlier in the year. I'm going to call to make sure.

[creditcardfree]

Originally Posted by maat55

Good idea, but I think I only had 60 days to do so. I made the conversion earlier in the year. I'm going to call to make sure.

That is probably right. I'm sure you aren't the only one to make the mistake and you likely will never do it again!!

[MonkeyMama]

Originally Posted by maat55

What was I thinking. I'm guessing that I will have to show the tax withholding as income, add the penalty and apply the withholding to this years estimates?

Yes, that works. Apply the over-payment to next year, you mean? Yeah - I could have thought of that.

I believe the way you would input it into your tax program is to put the net amount as a ROTH conversion (gross minus tax withholding) and then show the tax part as an early withdrawal.

I don't think you can put that money back. Doesn't hurt to check with investment custodian. Bigger issue is the IRS has it so it's hard to put back in that case. Unless you have other cash.

I'd look at the early withdrawl exceptions and see if you can squueze out a good excuse. I just read an article about medical expense exception (I wasn't even aware of that one).

These things get real tricky real fast.

[MrPolarZero]

I think you can already apply them now. But you might still want to check the schecules provided by the IRA just to be sure.

[SnoopyCool]

Check form 5329, line 2, to see if you can exclude any of your money with those allowable distributions (such as No. 5, medical expenses).