Taxes on Roth Conversion
My wife recently became a stay at home mom and her retirement account at work would no longer earn anything so we wanted to transfer it into her Roth IRA that we have through VG. The broker her employer used sent two checks to VG in January, one with the roth contributions (which was transferred directly into her Roth IRA) and another for $20,000 that included all of the pre-tax contributions (which was transferred to a traditional IRA account). We went ahead and rolled over $10,000 of that into her Roth IRA in February since it won’t push us into a higher tax bracket this year. I think we need to pay estimated taxes on the $10,000 but am confused on if I pay them quarterly or just one payment since it was a single transaction and which form I use? Would I also need to pay estimated state taxes (Oklahoma)? We will be in the 15% tax bracket for 2017 and our taxable income will be considerably less than last year due to my wife not working. Thanks for your help!
Permalink Submitted by Alan - IRA critic on Wed, 2017-03-22 01:13
You are probably covered under a “safe harbor” from underpayment penalties since your taxable income is expected to be lower in 2017. This safe harbor only requires that you pay by quarterly estimates or withholding an amount equal to 90% of your 2017 tax liability. You should probably re check your W-4 at work to determine the right amount of withholding to take out for the last 9 months of 2017. That should eliminate the need to pay quarterly estimates if most of your taxable income is from your job. Can’t comment about individual state requirements, but your OK tax booklet should clarify the amount of withholding required.