Converting a portion of 401K to Roth

Over at EarlyRetirement.org we read the following discussion: 

	#2
Shawn Recycles dryer sheets Join Date: Jan 2007 Posts: 318	I do not know the specifics of your situation. However, I have been making backdoor Roth IRA contributions from my 401k for the last several years. In my case, the 401k dollars that I convert are after-tax contributions (plus minimal earnings on the after-tax contributions). That is, I make $17.5K of before-tax contributions to my 401k. I make $5.5K of before-tax catchup contributions to my 401k. Then I make $34.5K of after-tax contributions to my 401k. I "immediately" roll the $34.5K of after-tax contributions to my Roth IRA. I am allowed to do this because my 401k allows in-service withdrawals of after-tax contributions. Because I am rolling over after-tax contributions, the Roth conversion itself is tax free (except for minimal taxes on after-tax earnings while they are in the 401k). I do this all at Fidelity. They have been knowledgeable about the process. In your case, it sounds like the $37K may be fully taxable, unless part of the $37K is from after-tax contributions that you made. Fidelity should be able to tell you how much of the $37K will be taxable due to the rollover. I do not know if Fidelity can withhold taxes. I was never faced with this situation since my rollovers have been essentially tax free. I do not believe you will be faced with a 10% penalty, since the money is going into a Roth IRA (although I do not know the ramifications of employer contributions). I am assuming that Fidelity is performing the transfer, and that the funds are going from a Fidelity 401k into a Fidelity Roth IRA. __________________ __________________

Yesterday, 05:05 PM	#3
chicago_meatball Dryer sheet wannabe Join Date: Jan 2014 Location: N/W suberbs Posts: 13	Quote: Originally Posted by Shawn  I do not know the specifics of your situation. However, I have been making backdoor Roth IRA contributions from my 401k for the last several years. In my case, the 401k dollars that I convert are after-tax contributions (plus minimal earnings on the after-tax contributions). That is, I make $17.5K of before-tax contributions to my 401k. I make $5.5K of before-tax catchup contributions to my 401k. Then I make $34.5K of after-tax contributions to my 401k. I "immediately" roll the $34.5K of after-tax contributions to my Roth IRA. I am allowed to do this because my 401k allows in-service withdrawals of after-tax contributions. Because I am rolling over after-tax contributions, the Roth conversion itself is tax free (except for minimal taxes on after-tax earnings while they are in the 401k). I do this all at Fidelity. They have been knowledgeable about the process. In your case, it sounds like the $37K may be fully taxable, unless part of the $37K is from after-tax contributions that you made. Fidelity should be able to tell you how much of the $37K will be taxable due to the rollover. I do not know if Fidelity can withhold taxes. I was never faced with this situation since my rollovers have been essentially tax free. I do not believe you will be faced with a 10% penalty, since the money is going into a Roth IRA (although I do not know the ramifications of employer contributions). I am assuming that Fidelity is performing the transfer, and that the funds are going from a Fidelity 401k into a Fidelity Roth IRA. You are correct about it being fidelity to fidelity, and you make a very interesting thought on being able to transfer the over payment on the 401K into the Roth. So in your situation, you could potentially contribute 40K annually to your ROTH, 34.5 from 401K and 5500 from the IRA back door. Does your 401K limit you to 34.5K of after tax contributions? __________________

Yesterday, 05:28 PM	#4
Shawn Recycles dryer sheets Join Date: Jan 2007 Posts: 318	Quote: Originally Posted by chicago_meatball  You are correct about it being fidelity to fidelity, and you make a very interesting thought on being able to transfer the over payment on the 401K into the Roth. So in your situation, you could potentially contribute 40K annually to your ROTH, 34.5 from 401K and 5500 from the IRA back door. Does your 401K limit you to 34.5K of after tax contributions? Yes, currently I can make $41K in backdoor Roth contributions each year ($34.5K from the 401k, plus $6.5K from an IRA factoring in the $1K catch-up provision for those over age 50). This is money that would have otherwise gone into a taxable account. It is a free lunch. The $34.5K is bound by the IRS 415c limit. For 2014, one can contribute up to $52K to a 401k (the sum of before-tax, after-tax, and employer contributions). This is the maximum. Specific 401k plans may have lower limits. People over age 50 can contribute an additional $5.5K. Note that your term "over payment" is incorrect. After-tax contributions to a 401k are not over payments. __________________

Today, 12:39 AM	#5
obgyn65 Thinks s/he gets paid by the post Join Date: Sep 2010 Location: midwestern city Posts: 3,901	To the OP: have you read this http://www.bogleheads.org/wiki/Roth_IRA_conversion and the links at the bottom of the page? __________________ Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.

Today, 02:06 AM	#6
gauss Recycles dryer sheets Join Date: Aug 2011 Posts: 250	@chicago_meatball - You are not subject to the 10% penalty if all the funds are properly rolled over to an IRA of some type. - I think you will need to come up with the taxes from your non-retirement funds, otherwise a 10% penalty will apply to any retirement funds used for this purpose. - Make sure you understand how under withholding can cause IRS penalties. Quarterly tax payments is a related concept, although you might to check to see if you can increase your job's W2 withholding all year to cover the increased taxes due to any Roth conversions. - Remember you don't need to roll over the entire $37k at one time. My advice would only to do maybe $1k the first year so that you understand the process (including filing your income tax the next year). - You also may wish to do smaller rollovers over multiple years to avoid be pushed into a higher tax bracket if this is an issue. - How long until you can RE? Once I was within 5 years of retirement, I held off on any taxable Roth conversions because of the lower tax rate (15%) that would apply in retirement due to lower income. After-Tax Contributions FWIW, both DW and my 401k plans also had the availability to make after-tax contributions like @Shawn describes. Since 2010 we were each maxing out the full IRS limit (~$100,000k combined). This built up our Roth IRAs nicely over the course of a few years without having to convert any of our pre-tax money. You do need to watch out for and manage the Pro-Rata rules, however. If anyone has access to after-tax contributions in their 401k combined with the ability to do in-service withdrawals, this can be a huge benefit. -gauss __________________

IRS enables Americans to download their tax transcripts over the Internet

Alex at E Plaribus Unum writes: Earlier today, at the White House Education Datapalooza, an official from the United States Department of the Treasury informed a packed theater and livestream that students, parents and citizens would finally be able to do something simple and profoundly useful over the Internet: download a transcript of their tax return from the Internal Revenue Service.

“I am very excited to announce that the IRS has just launched, this week, a transcript application which will give taxpayers the ability to view, print, and download tax transcripts,” said Katherine Sydor, a policy advisor in the Office of Consumer Policy of the Treasury, “making it easier for student borrowers to access tax records he or she might need to submit loan applications or grant applications.” [VIDEO]

Previously, filers could request a copy of a return — the “transcript” but would have to wait 5-10 business days to receive it in the mail. For people who needed more rapid access for applications, the delay could be critical. A White House fact sheet subsequently confirmed the news, under the rubric of “streamlining application paperwork,” and a quick follow up with an official secured the correct URL for the new IRS Web application to get a tax transcript.



I created an account, which involved jumping through the standard hoops of pass phrase, pass image and security questions familiar from bank accounts, and answered a number of questions that made it pretty clear that the IRS knew exactly who I was and where I had lived.

When I tried to actually download the transcript, though, I ran into some issues: first, a browser error in Chrome – ”This XML file does not appear to have any style information associated with it. The document tree is shown below.” Using Firefox, however, I was able to at least get the page where I could choose from various years of transcripts.



Unfortunately, clicking any of the links delivered a file that my Macbook was unable to parse. I was, however, able to log into IRS.gov and easily download last year’s tax return with one click to my iPhone. Success!

While the technical problems I ran into suggest that Apple computer users might run into some issues, I have a funny feeling that (the vast majority) of people who are running Internet Explorer on a Windows machine will fare better.

The fact that American citizens could not access their own tax returns online in 2014 might seem jarring but, until this week, that was the status quo. This advance represents the sort of somewhat mundane but important shift that the Obama administration’s approach to digital government have enabled over the past five years.

While the troubles behind the botched launch of Healthcare.gov have shaken the confidence of many citizens in the capacity of this administration to deliver effective digital services and months of headlines about digital surveillance by the National Security Agency have diminished trust in government overall, the ability of the “tech surge” to fix the site and the success of the technology team at the Consumer Financial Protection Bureau not only offers a guide for how to avoid similar issues but highlights a less salacious and boring reality that will generate no headlines nor heated rhetoric on cable news shows: most public officials and civil servants are quietly working to deliver better customer service for citizens.
Being able to download a tax return online is not, however, without risks. The Internal Revenue Service will need to continue to be vigilant about security. The new functionality will almost certainly inspire fraudsters to create mockups of the government website that look similar and then send phishing emails to consumers, urging them to “log in” to fake websites.

Perhaps most problematically, people will download tax returns to mobile devices and laptops and then not take steps to protect them with encryption. If you do download your returns or personal health information, make sure to also install full disk encryption on every machine you own. Leaving your files unprotected there is like leaving the door to your house unlocked with your tax returns and medical records on the kitchen table.

NZ Stock Exchange seeks explanation from Xero for its rapid share price rise, with a gain of 7.7% on 14 January 2014 alone

MENA FN.com / Australian Financial Review writes: Jan 16, 2014 (Menafn - The Australian Financial Review - ABIX via COMTEX) --The New Zealand Stock Exchange has sought an explanation from Xero for its recent rapid share price rise, with a gain of 7.7% on 14 January 2014 alone. The market capitalisation of the provider of cloud computing for accounting practices has grown A1.1bn to A4.5bn in the first two weeks of calendar 2014. Major stockholder Craig Winkler, who set up accounting software firm MYOB, made some A110m from its sale to private equity player Archer Capital in early 2009. He then bought Xero stock worth A15m that has now risen to A620m at the all-time high share price of A5.52.

Publication Date: 17 January 2014

XERO LIMITED - ASX XRO
MYOB TECHNOLOGY PTY LTD
ARCHER CAPITAL PTY LTD
NEW ZEALAND STOCK MARKET
NEW ZEALAND EXCHANGE LIMITED
FACEBOOK INCORPORATED
YAJILLARA TRUST

Copyright 2014 LexisNexis Australia. All Rights Reserved.

What is the TurboTax Refer-a-Friend Program?

Intuit’s TurboTax has partnered with Extole to offer the TurboTax Refer-a-Friend program. The TurboTax Refer-a-Friend Program allows you to earn a $10 Amazon.com Gift Card (sent to you via email) reward for every friend you refer who completes his or her taxes with any TurboTax Federal Basic, Deluxe, Premier and Home & Business product. Your friend gets 20% off any TurboTax federal online product they choose (Basic, Deluxe,Premier or Home & Business). This is only for TurboTax online customers and the discount only applies to their federal tax return (state tax returns are additional). You can earn a maximum of $200 in Amazon.com Gift Cards (sent to you via email) but there is no limit to the number of friends you refer.

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• First, visit the share page: http://refer.turbotax.intuit.com/ 
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My friend said I should have seen an email with a discount of 20% for TurboTax online, I don’t see the email (and I use Gmail) 

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My friend said I should have seen an email with a discount of 20% for TurboTax online, I don’t see the email (and I use Gmail) 

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Are the Amazon gift cards sent to my home address?

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5 Tips Using Cloud Accounting Software To Achieve Small Business Success

Dave Anderson for Xero writes: Starting your very own small business is an exciting yet daunting venture. You’re chasing your dream – leaving everything else behind to do what you’ve always wanted to do, the way you envision it should be done. On the other hand, you’re putting it all on the line. You’re risking not only your career but your entire livelihood. The success or failure of your business will have a direct impact on the entirety of your life.

According to the U.S Small Business Association Office of Advocacy, about a third of businesses fail in their first two years of operation and about half fail within the first five years. Poor financial management is one of the main reasons businesses go under. When resources are tight it is easy for ambitious entrepreneurs to overspend, believing that profitability is right around the corner.

There is really no excuse for not staying on top of your finances in this day and age. There are a number of financial tools that are now easier to use and more accessible since becoming readily available in the cloud. The following list highlights the types of web-based software all small business owners should use in order to achieve financial success.

#1. Accounting

Cloud accounting software is the best way to keep track of your business cash flow. It provides owners and their accountants both high-level and detailed views of their current financial situation, in real-time. Many solutions connect with their user’s bank accounts, allowing bank transactions to be fed directly into the ledger, eliminating the need for manual data entry.

What sets cloud accounting software apart from its desktop predecessors is that it is accessible anytime, anywhere. This not only makes it easy for business owners to check their finances on the go, but also lets accountants access their client’s books whenever it’s convenient. The accessibility factor makes for greater collaboration between both parties and really gives accountants the ability to act as trusted financial advisors that monitor the financial well-being of their client’s business.

#2. Payroll

Traditionally, running payroll was a burden that reoccurred every two weeks or so for small business owners. Thanks to the new features made possible by payroll in the cloud, this is no longer the case. Many payroll software vendors provide an employee app, where staff can log in and request time off and access paystubs without having the ability to view the greater financial data.

The payroll manager can set PTO rules and let the software automatically track accruals. The ability to have the entire company take part in payroll removes much of the hassle for the person who ultimately processes it.

In addition to the employee app, features like automatic tax calculations and filing, API integration and comprehensive reporting are now commonplace for online payroll software.

#3. Expensing

Passing along a pile of paper receipts attached to an expense report has no place in the digital age we now live in. There are numerous applications that make expense reporting quick and easy. Like cloud accounting solutions, web-based expensing software can link with online bank and credit card accounts, allowing for transactions to be automatically imported into an expense report.

Many solutions also offer mobile apps that make it simple to track and automate expenses while employees are on the road, spending money. For instance, miles traveled can be tracked using mobile GPS capabilities and expense items can be imported via a photo of a receipt.

#4. Invoicing

Creating, sending and keeping track of invoices is now much more efficient than it once was. Good cloud invoicing software lets users create an invoice, send it from the application and monitor when the client has viewed it. This makes it easy for small business owners to keep a close eye on how outstanding invoices are affecting their cashflow and determine when it is the proper time to follow up with the customer.

Invoicing software often has the capability to pre-load inventory items and their cost and upload company logos. This makes generating an accurate and branded invoice a task that can be accomplished in only a few clicks.

#5. Time tracking

Accurately tracking the number of hours spent on a client project is an absolute must for service-oriented businesses. Not long ago it was easy to lose track of hours, leading to imprecise invoices and questions from the client. Luckily this is no longer the case thanks to the emergence of online time tracking software.

Contractors, freelancers and other service providers can track the time they spend on particular projects by using web or mobile timers, which automatically import the total hours into a timesheet. The project manager can keep tabs on overall progress by tracking the hours of each team member, ensuring everyone stays on schedule and budget.

As much as the cloud has expanded the capabilities of each of the financial management tools mentioned, its greatest achievement is that it lets all of them interact and share information. Accounting ledgers can be updated automatically with external invoices, pay runs and expenses. Timesheets can be imported into your invoicing software. Approved expenses can flow into payroll software. Using the cloud, small business owners can build a custom total business solution that meets all their needs and gives them a comprehensive and accessible view of their financial health.