Timing of estimated taxes to be paid for Roth conversion
Hi:
I’m 67 and completed 3 Roth Conversions in 2024. I pay state taxes in Wisconsin. Estimated taxes are being paid outside of the conversions.
a). In-service Traditional 401k to Roth IRA and Roth 401k to Roth IRA on June 3, 2024
b). Fidelity Roth conversion by transferring Rollover IRA to Roth IRA on December 27, 2024
- What are the latest dates that the estimated taxes need to be paid to avoid penalties for underpayment?
- If estimated taxes are paid via the federal tax website and/or extra estimated tax amount is taken out of an inherited IRA distribution, does the due date to avoid penalities change?
- If I complete a Rollover IRA to Roth IRA in January or February 2025, what is the latest date that I could pay estimated taxes to avoid penalities?
Permalink Submitted by Alan - IRA critic on Fri, 2024-12-27 17:43
The IRS will treat your entire taxable income as having been received equally throughout the year, but estimates are only credited when received. Therefore, a large estimate to reflect the current conversion in Jan, 2025 may not eliminate the penalty for the first 3 quarters if there is one. Obviously, this varies by the amount of those earlier conversions.
But if your taxable income will be higher than it was in 2023, you only need to pay equal quarterly estimates of 25% of your 2023 tax liability to eliminate any underpayment penalty (27.5% if your 2023 AGI was over 150k). This also applies to withholding, which you can do any time in the year.
Because withholding is credited equally throughout the year regardless of when paid, there are no timing issues, as you could withhold from an inherited IRA distribution (up to 99%) in December and that would correct any earlier shortfalls in estimates. But of course, it’s probably too late for that this year.
Therefore, for 2024, about all you can do now is to pay an estimate by 1/15/2025 as it is too late for withholding. Perhaps you can integrate withholding in 2025 as a more effective way to deal with the timing of your conversions and other income.
Permalink Submitted by Norman Cook on Mon, 2024-12-30 23:29
I THINK(?) IRS Form 2023 page 3 allows for unequal income during the year. This should help with the June and December conversions and late estimate payment for June.
Permalink Submitted by Pamela Poker-Meichtry on Fri, 2025-01-03 10:28
Hi:
I’m completing large Roth conversions each year up to the top of the 24% bracket($394,600) and my question relates to not receiving an underpayment penalty and determining when the latest time would be to pay the estimated taxes if a large roth conversion is completed in Jan/Feb 2025 and small amount in Dec 2025. In 2024, I completed a large roth conversion in June and immediately paid the estimated taxes for the full amount and also paid estimated taxes in Dec 2024 for the Dec 2024 conversion. I’m wondering when I need to pay the estimated taxes without underpayment penalty because I would like to earn interest on the money if I don’t need to pay the estimated taxes earlier in the year in 2025. I asked about 2024 because I wanted to understand exactly when the estimated taxes needed to get paid to not get an underpayment penalty.
Will I owe underpayment penalty in 2024 because I did not pay estimated taxes earlier in the year even though my Roth conversion occurred on June 3, 2024 and paid full estimated federal taxes on 6/7/2024? What’s the difference if my income was more than 2023 income or less than 2023 income?
If I convert large Roth conversion amount in Jan/Feb 2025 and already paid estimated taxes in 2024 for the 2024 Roth conversions, how does previous years Roth conversions effect 2025 Roth conversions? What’s the latest timeframe that I can pay the estimated taxes to not get an underpayment penalty?
Please explain any differences if I pay the federal taxes via estimated tax payments via the federal tax website or pay taxes via inherited IRA account.