Roth conversion/ estimated taxes
I plan to do an $80,000 Roth conversion in 2024.In March I figured my estimated income which included the Roth conversion for 2024. Figured what the tax would be on this amount divided it by 4 to get my quarterly estimated taxes due. Have made 2 quarterly payments so far for April and June. Does it matter when I do the Roth conversion? Can it be done at anytime during the year as long as I make the quarterly estimated tax payments. Want to avoid IRS late fees and penalties. thank you.
Permalink Submitted by Alan - IRA critic on Sun, 2024-06-16 00:22
If your estimate was enough to meet one of the safe harbors, it does not matter when you convert. But if your estimates fall short of safe harbor, then you will be subject to an underpayment penalty. However, if you convert later in the year and file the annualized income installment Form 2210 AI (which is a hassle), your penalty will be less because you will probably avoid a penalty for any quarters prior to the conversion quarter. Of course, the actual numbers can result in some variances.
Permalink Submitted by Robert Bachman on Thu, 2024-08-15 18:40
I did a $107,000 Roth conversion in August 2024. I made ES payments of $1000 each quarter to cover real estate income. I have not increased my ES payment. I calculated the roth conversion tax and sent the IRS a lump sum payment of $22,000 via Direct Pay in August. By years end I will have approximately $34,000 in payments through withholding, ES payments and the lump sum payment. Given that my ES payments are not equal because of the lump sum, do you think I will be penalized for underpayment?