Paying income tax for early in year Roth conversion.
I made a sixty thousand dollar Ira to Roth conversion in the first quarter of 2018.
I do not have a safe harbor for this year.
Did I have to pay the entire associated income tax with that in the first quarter?
I had assumed I could make the estimated payments on a quarterly basis throughout the year for the associated tax liability.
Should I quickly pay the total amount estimated quickly here in late September? I get a monthly pension check – should I increase the withholding on that to accommodate the entire liability over the next two or three pension checks? Or are the quarterly payments OK and just keep going forward? Thx.
Permalink Submitted by Alan - IRA critic on Wed, 2018-08-29 21:18
What were the 1st and 2nd estimates based on? Usually, it would be 100% of last year’s tax liability (110% for higher incomes). If that is what you paid, you can just continue that and there will be no penalty no matter how much you owe in April. If you paid less, the annualized installment method will not help because you converted early in the year. In that case, there will be a penalty for the first two quarters even if you pay up in the last 2 quarters. Of you could meet your safe harbor by increasing pension withholding since for withholding it does not matter when the withholding occurs in relation to the income. Sounds like your calcs will be more complex then because you will be combining withholding with quarterly estimates.