Annual backdoor Roth conversion tax being held
Hello,
A client made the annual backdoor Roth conversion. Unfortunately, she forgot to select non-tax withholding and advisor didn’t see that either. The account was converted to Roth on 10/13/21. Now, only $5,400 out of $6k was converted to Roth. Advisor called the HO, but she was told Pershing was not likely to return that $600k to the client’s T-IRA.
What’s her option?
Permalink Submitted by Alan - IRA critic on Fri, 2021-10-15 21:06
Her option to complete the Roth conversion is to contribute 600 to the Roth IRA and tell the custodian it is a conversion contribution. That will complete the 6000 conversion as intended. She will get credit for the 600 that was withheld when she files her 2021 tax return. If she needs the money sooner, she might reduce her wage withholding for the rest of the year by an amount that would increase her take home pay by 600.
Her tax return will report a 6000 conversion on Form 8606, same as if there had been no withholding. The 1099R will also show the withholding from the TIRA distribution. The 5498 for 2021 will report Roth conversion contributions of 6000 in 2021.