Enzolytics Inc (ENZC)

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Note: If you have a 401(k) from a former employer and are interested in the advantages offered by Roth IRAs, you can convert your 401(k) into a Roth IRA directly. However, similar to converting assets from a Traditional IRA, you'll owe taxes on the amount of pretax assets you convert.2

How conversions are taxe

The amount you choose to convert will be taxed as ordinary income. This additional income, therefore, can push you into a higher marginal federal income tax bracket.

The total taxable amount is affected by whether the underlying contributions to the IRA were deductible. Deductible contributions and any gains on them are taxed at their full current value—so if your Traditional IRA has only deductible contributions, you’ll pay tax on the full amount. Nondeductible contributions have a nontaxable portion, which you’ll calculate using cost basis on IRS Form 8606.

Ways to pay the tax
The federal tax on a Roth IRA conversion will be collected by the IRS with the rest of your income taxes due on the return you file for the year of the conversion. The ordinary income generated by a Roth IRA conversion generally can be offset by losses and deductions reported on the same tax return.

It's usually considered a good idea to avoid using the funds that are being converted from within your Roth to pay the tax on a conversion. By doing so, you will have less left in the account to potentially grow tax-free and, if you are under 59½, you'll also incur the 10% penalty on the amount you don't convert to the Roth IRA.

You may be required to make estimated tax payments in the year of the conversion, before you file your annual return.

Reporting conversions on your return
Fidelity reports any Roth IRA conversion amounts as distributions on Form 1099-R and contributions to the Roth IRA(s) for the tax year on Form 5498.

For help with the 1099-R and 5498, see the IRS Instructions for Forms 1099-R and 5498 (PDF)

You may also review the IRS Form 1040 instructions or consult with your tax advisor.