401K to rollover IRA to ROTH IRA tax payment options

I have taken part of my 401K and transferred part of it to a Roth IRA and Rollover IRA. I would like to convert the Rollover IRA (over $300,000) to a different Roth IRA.This will result in tax liabilities from the conversion process. I believe that the Rollover IRA custodian (Vanguard) will offer the option to use some of the funds in the Rollover to pay for tax liabilities (ie 30 percent or whatever). I would not prefer to do this as it lowers the Roth IRA growth potential. However the advantage is that I do not have to mess around with estimated taxes and Vanguard handles the tax payment.

Could I let the Vanguard custodian take out the tax funds and then within 60 days after the conversion date replace the funds taken out to cover taxes by adding cash back in taken from my personal after tax savings (savings bank account)?

Would the income limit imposed on ROTH IRA contributions limit the amount I can replace the tax money taken out or would the added cash to make up for taxes just be considered as part of the original Rollover IRA ?

The biggest restriction is that you can only replace the IRA funds once every 12 months. So you can’t do a quarterly conversion, have Vanguard withhold some money, then replace that money within 60 days. Well, you can do it once. Then you have to wait a year to do it again. The other three quarters would be out of luck.

Making estimated tax payments really isn’t that hard. Mail a check with a 1040-ES voucher (all that needs is name, address, SSN, and amount you are paying). Or sign up for EFTPS on the IRS web site and schedule your payments in advance - or make them on the spot. It’s really no harder than paying any other bill you might have.



Hi @math999man,


The 60 day rule applies to a rollover/conversion where the first trustee sends a physical check to you for the rollover/conversion then you deliver the check to the 2nd trustee.

Nothing is being sent to you and you do not want anything sent to you. On the “old boards” a person with a small 401K was told they would only do that dollar amount by check, not Trustee-to-Trustee. The check was lost and it took over 4 months to get a replacement check to him and he had to deal with the IRS, documenting the delays in getting the rollover completed.

If you do a Trustee-to-Trustee transfer, you can do multiple conversions in a year if you chose to. The one-per-year applies ONLY to having the check mailed to you.

Unless you have a specific reason to convert the entire IRA, you can do partial conversions. I did one or more Roth conversions every year starting in 2010 and did my final conversion in January this year.

Another thing about this statement is it will be to your existing Roth IRA, not a “different” one. If you open a second account, it is simply an extension of your existing Roth IRA. While a 5 year clock will apply to the conversion amount the account will not have a clock on it unless your original Roth IRA is less than 5 years old.

If you want to do the tax payment the easy way, setup an account on the IRS site:
EFTPS Online

You just login to the site, fill out an ES form with the amount and date, print a copy of the form for your records/accountant/tax preparer and you are done. On the date you set, the IRS will grab that amount from the account you specify and it is all handled.

I use this for quarterly submissions and for one time payments. I have 2 PIN’s setup, one for our savings account and the other for checking, depending on where I put the cash.

This is an invalid question since you can’t do what you were asking.

However for clarity, any money that is put into a retirement account of any kind from the “taxable world” is considered a contribution and must follow the applicable rules.

Does that help you?

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Not exactly. The scenario that @math999man proposed also works, since withholding is considered a withdrawal, which can be replaced, even if the money was not sent in the form of a check to the owner of the IRA. Additionally, your scenario of receiving a check depends completely on how the check is made out. If the check delivered to you from a 401(k) is made out to “gdett2’s IRA FBO gdett2” then it’s still considered a trustee-to-trustee transfer since you can’t cash the check.

As already noted though, you can only do one rollover that’s not a trustee-to-trustee rollover every 365 days. I would also point out that HSA transfers can also be non-trustee-to-trustee rollovers that restart the clock.

I would also point out that if you meet a safe harbor in another way, like through withholdings from a paycheck, your SS, or other 401(k)/IRA withholdings, you don’t need to do quarterly payments at all.