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How to roll $720,000 into a Roth IRA while limiting taxes
A Roth conversion generally triggers income taxes on the amount converted, and missing the 60-day window can cause the IRS to treat the transfer as a distribution with a possible 10% penalty.
Yahoo Finance and SmartAsset outline how a Roth rollover, also called a Roth conversion, works for moving retirement assets into a Roth IRA. The article notes that while qualified Roth withdrawals are tax-free in retirement, converting pre-tax money typically creates a taxable event in the year of the conversion.
The piece explains that Roth conversions require paying income tax on the amount rolled over for that year. It also distinguishes rollovers from Roth contributions, emphasizing that contributions use after-tax dollars, while conversions can be done even for higher-income taxpayers since there are no income limits for converting from other accounts.
According to the article, rollovers can be completed from accounts such as traditional IRAs and 401(k) plans, among others. It advises starting the process by contacting the account holder to facilitate the transfer and highlights the IRS rule that conversions generally must be completed within 60 days to avoid treatment as a distribution, which could bring a 10% early withdrawal penalty.