Estimated pmnt on Roth Conversion

Submitted by williamwalsh on Wed, 2019-10-16 19:23

I’m considering converting a lump sum to Roth ($32,500), and estimate that my tax liability will be a higher total ($11,500), than what I paid in tax last year ($4,300). Do I need to send an estimated Federal and State (I live in Vermont), tax payment to avoid underpayment penalty?



Submitted by Alan - IRA critic on Wed, 2019-10-16 20:30

  • You will have to meet your safe harbor, which will be 4300 paid as withholding anytime this year, 4 quarterly estimates of at least 1075 paid by the quarterly due dates, or some combination of these using both withholding and estimates. There is also the option of filing Form 2210, Sch AI which allows you to pay a higher 4th quarter estimate when your taxable income is loaded into the 4th Q, as yours would be. This form is complex and most people would rather avoid it. 
  • Another method that I would not use repeatedly, is to take a separate IRA distribution to bring your withholding for the year up to 4300, then roll back the gross distribution using other funds within 60 days. This gets the needed withholding to the IRS in 2019. However, remember the one rollover limit per 12 months. You cannot do this if you have already used up that one rollover.

Submitted by williamwalsh on Wed, 2019-10-16 21:38

Great!  This is tremendously helpful.  Thank you Alan!

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