If someone, in the process of leaving a job last summer, rolled over their 401K into a Roth IRA and is now looking at a several thousand dollar tax bill, is there any way to salvage that by transferring the money into a regular IRA?

EDIT: Further details. I submitted our tax return about a week ago and we received our refund yesterday. But it is wrong (the company that handled the rollover sent us an incorrect 1099-R) and I'm going to have to amend the return, give back the ~$2500 refund we got, plus pay ~$5000 in taxes.

In an ideal world, I would just bite the bullet, pay the taxes and get the benefit of withdrawing it tax-free later. However, my wife and I are going through a divorce and cash is tight right now. Plus, it being in a Roth IRA instead of a traditional will complicate divvying up assets.

So, while waiting on the corrected 1099-R to come in so I can submit an amended return, I'm trying to figure out if I can fix this without having to pay close to $8000 that we can't really afford right now.

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    Did you file your 2018 tax return on time? Apr 16, 2019 at 23:31
  • Yes. I'm going to edit in some more details.
    – Kevin
    Apr 17, 2019 at 2:24
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    For individual tax debt up to $25k ($50k with direct debit) you can automatically get a 'streamlined' installment agreement that allows you to pay over at least 5 years and I believe now 7 years (but never exceeding the statutory CSED, normally 10 years from assessement). They still charge interest, and half the normal failure-to-pay penalty (.25%/mo=3%/yr instead of .5%/mo=6%/yr). You must have filed, and continue to file, all required returns. Apr 17, 2019 at 21:27
  • Just a reminder, IRS charges about 6% interest. If they're not blowing up your mailbox right now, this can be kicked down the road a bit. Other circumstances permitting, of course. Apr 18, 2019 at 1:44

2 Answers 2


This used to be possible before 2018, but is no longer possible. Basically, you did a conversion from Traditional 401k to Roth IRA, and one of the several types of "recharacterization" could be used to "undo" a conversion, and treat it as a rollover to Traditional IRA. However, the specific type of recharacterization for undoing a conversion was eliminated under the new tax law. Specifically, undoing a conversion is not allowed for any conversion that took place after December 31, 2017.

  • Can you check the information in my edit to see if that changes anything about your answer? I doubt it does, but figured I'd ask
    – Kevin
    Apr 17, 2019 at 2:31

Maybe. The deadline to recharacterize an IRA or Roth contribution (to the other) is October 15 if you filed your 2018 taxes by April 15. You would amend your taxes with a 1040X.

But I wouldn't be fighting this. This is a Very Good Thing.

IRS is infinitely patient and their interest rate is 6%. This is way, way, way too soon for IRS to send postal mail about your 2018 taxes. If someone is time-pressuring you, it may be an IRS scam; it's certainly so if they are outreaching by email or phone. (IRS only contacts by postal mail). Scammers hit everyone, claiming you have a tax issue; it just so happens you actually do. IRS is very, very slow. It can take them a year to even contact you, and another year to even start with the telephone. And they only ever want paper checks mailed to the official addresses.

If you are pressuring yourself because you don't know what the consequences are and fear the darkness, relax. It's not that big a deal. The IRS doesn't even mark your credit report.

If I were in your shoes, I would just make the IRS wait. The Roth conversion is such a huge win for anyone under 45 that I'd accept a few postal mails.

The 401K is analogous to a traditional IRA.

The Roth is a far superior type, especially for young people.

Here are the differences:

In a IRA/401K, you use "pre-tax money" and put it into the IRA. You've never paid taxes on this money. The money is invested and compounds. At 7% a year in stocks, it will grow by 3000% (30 times). You pay taxes on IRA/401K money when you take it out. And it's 30 times larger, *so that is a LOT of tax**.

(Granted, you pay the tax going in or going out. And that part at least is a wash if everything goes right; modulo some very serious risks.)

In a Roth, you use "post-tax money" and put it in the Roth. You already paid taxes on this money, so it's tax-free when you take it out. Thanks to Senator Roth, the compounding is also tax-free. That is huge. That is the biggest giveaway in the entire tax code. You paid a measly few grand of tax 50 years ago and now you're homefree.

What you did was equivalent to

  • convert the 401K to a traditional IRA (no problem there) then
  • convert the traditional IRA to a Roth. (super, but gotta pay the tax).

But remember, 401K/Trad. IRAs contain money that taxes were never paid on, and the tax must be paid coming out. That can be much worse if you take it out in a big surge e.g. due to metical issues. Roths can only be funded with money that you had paid taxes on. Therefore, you do have to pay the tax on any money you convert from Traditional to Roth.

This lets you exploit a variety of Roth features/effects. So this is a win for you overall, even if it can be a pinch today. I mean everybody'd rather not pay taxes. But if you have to pay taxes, better a few grand today than $100,000+ when you are in retirement and on a fixed income. (I mean emotionally; it's a wash if everything goes right, but it might not.)

The Roth is a good thing.

Just in the future, try to rig it so you do the Roth conversion in a gap year or years, so your taxes are lower during the conversion. That's another Roth hack :)

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    This answer makes it sound as if Roth IRA is inherently and massively better than traditional IRA. This is not necessarily so, and depends on tax rate at the moment of contribution (now) vs. the moment of distribution (retirement). Converting the entire traditional 401k into Roth IRA all in one year is rarely a smart choice.
    – void_ptr
    Apr 17, 2019 at 0:26
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    It does not matter if you pay $2000 tax today or $60,000 tax later - if your tax rate is the same, you end up with the same amount of money in your pocket. Ultimately this is due to a * b = b * a. This has actually been discussed (in a lot more details) many times, on this site, and elsewhere.
    – void_ptr
    Apr 17, 2019 at 1:33
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    @Harper you seem to miss the fact that the traditional IRA - given it is pre-tax - has a significantly larger base value on which compounding interest is applied. The easiest way to think about traditional vs Roth is if you consider that (say) 30% of the capital in your traditional account is taxable, and all compound interest on that is also taxable. The other 70% is yours and all compound interest is yours. If the tax rate on investing is the same as tax rate on withdrawal, there is no different between traditional and IRA. Apr 17, 2019 at 21:50
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    @Harper review the first answer to that question. There are differences, especially in marginal tax rate, retirement income, etc. But your claim that "the compounding is also tax-free. That is huge" is wrong. Tax then compound is the same as compound then tax, due to the commutative property of multiplication. Apr 18, 2019 at 14:46
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    If their tax bracket and marginal rate is the same then there's literally no difference - pay 28% back in 1990 or whatever, or pay 28% today. I agree on the contribution limits. I'm not suggesting that they are identical plans because in most cases marginal rates will differ etc., but I'm pointing out that the compounding is not a factor in any decision and is net neutral. Your answer here implies that the compounding is perhaps the most significant factor, which is extremely misleading. Apr 18, 2019 at 15:36

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