Today TaxMama hears from Carla in Indiana, who is concerned. “I have a client who took $105,000 from his 401(k) and rolled it over into a ROTH IRA because his investment advisor said that you only include the income you made that year. My research says to include the whole $105,000 as income.”
Hi Carla ,
He got some VERY bad advice. He should not be getting tax advice from his investment advisor. The advisor should only be providing investment advice.
By rolling the money into a ROTH IRA, he just made the entire distribution taxable right NOW!
If he had waited until 2010, he could have paid the tax over 2 or three years (in 2009, or 50/50 in 2010 & 2011). Regardless, the entire rollover would still have been taxable.
Is there any help for him? According to IRS Publication 590, perhaps just a little help.
Income. You must include in your gross income distributions from a qualified retirement plan that you would have had to include in income if you had not rolled them over into a Roth IRA. You do not include in gross income any part of a distribution from a qualified retirement plan that is a return of contributions (after-tax contributions) to the plan that were taxable to you when paid.
If he had after-tax contributions, that part of the rollover would not be taxable.And remember, you can find answers to all kinds of questions about Roth IRA rollovers and other tax issues, free. Where? Where else? At TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the subscribe link and join us.]
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- IRS Publication 590 :: Chapter 2, Defines income from rollovers