Rolling over pre-tax monies into Roth IRA directly

[Jakyasar]

Asking for a CPA friend

A terminated participant rolls over his pre-tax 401k account and employer account (SH+PS) directly into a ROTH IRA without any conversion during July 2025 and is now concerned about the taxes.

As this is out of my knowledge base, what is wrong with this scenario, what should have been done and what should be done now?

Thank you

[Bri]

I'd say nothing, BUT he should have made a big ol' estimated tax payment in the third quarter last year from personal assets.

Unless a Roth IRA wasn't where he indicated the funds should go.

[Jakyasar]

With my limited knowledge (or lack of it), was he not supposed to roll into a regular IRA first and then convert?

[Bri]

I think it's more like the deposit can go to the Roth IRA directly to make the conversion live upon receipt.

[CuseFan]

Agreed, can r/o directly to Roth IRA and since not subject to mandatory 20% tax w/h but taxable, yes, some estimated tax payment or other tax planning should have been done. Now it's just deal with the fallout and pay what's due along with any interest for being under w/h. Thankfully the 10% tax on pre-mature distribution does not apply regardless of the person's age.

[Jakyasar]

Thank you both