401K to Roth + SEP to Roth put me over my marginal tax bracket | Ed Slott and Company, LLC

401K to Roth + SEP to Roth put me over my marginal tax bracket

When filling out my 2019 taxes this past weekend, I discovered a mistake I made in December.

In 2019 I had three taxable retirement fund money transactions:
1) April: RMD from inherited IRA to my brokerage account
2) June: trustee to trustee transfer of SEP IRA at Credit Union to Roth IRA at Schwab
3) December: trustee to trustee transfer from my employer's 401k to the same Roth IRA at Schwab

In December, when calculating the number of dollars to transfer from my 401k to my Roth, as I do every year, I estimated my 2019 income and determined the amount to transfer based on not exceeding the upper end of my tax bracket. When making this calculation I took into account the April RMD, but I forgot that I'd made the June SEP to Roth transfer (or perhaps I just assumed it was a SEP to Rollover IRA transfer and didn't look it up).

While figuring out my taxes last weekend, I discovered that the combination of all three transactions sent me into the next higher bracket. My mistake (not remembering the June SEP to Roth transfer when doing the December calculation) is going to cost me about $8000 more in taxes than I would have had to pay had I not made this mistake.

Is there any way to fix this situation, that is, is there any way I can recover the $8000 from the IRS? Note that I've filed an extension but paid the tax owed (including the $8000).

Unfortunately, you cannot reverse any of the above transactions. Recharacterizations of conversions ended in 2017, and the recent corona virus flexibility does not apply to 2019 distributions. If you did not max out your SEP contribution for 2019, doing that by 7/15 (unless you file an extension to 10/15) doing that will reduce your 2019 tax bill. 

Thank you. Looks like I made a mistake that cost me $8000.  Guess that is, in effect, another "charitable contribution", but to whatever the Federal Government wants to spend it on....  Live and learn... I don't have any more SEP contributions becuase I'm no longer self employed, but an employee.

You might make a regular traditional IRA contribution, but if you are participated in an employer plan at anytime in 2019, your income will be too high to qualify for a deduction. Max contribution would be 7000. As for the 8000 in taxes, the current cost will gradually be at least partially recovered since your future RMDs will all be smaller because of the added amount you converted.


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