Paying Estimated Taxes for Roth Conversions
I recently retired and will not have any earned income in 2024. I just converted $100k from my 401k to a Roth IRA. When should I send in the estimated taxes for this conversion, i.e. immediately or 4/15? I shouldn’t have enough other income this year necessitating estimated payments, except that I do plan to convert another $100k later this year which I assume would require another estimated payment. Thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2024-03-04 18:56
FIrst, determine which safe harbor you will apply for 2024, the lesser of 100%/110% of your 2023 tax liability or 90% of your expected 2024 tax liability. The former is easier because you will know your 2023 tax liability by the time your first estimate is due on 4/15, but you won’t know your 2024 tax liability in most cases. I am assuming that you have no pensions or SS payments from which you could replace or reducte the estimates by using withholding.
Permalink Submitted by Timothy Jones on Mon, 2024-03-04 20:06
My income (and taxes) were artificially high in 2023 due to a separation package, so I plan to target paying 90% of my expected 2024 tax liability with estimated payments. I’m just not sure of the timing of when the estimated payments are due for Roth conversions as I mentioned in my original post. For example, is it best to pay the estimated taxes for the conversion immediately, by 4/15, or spread it out throughout the four estimated payment due dates? I have no monthly pension, and I’m not eligible to take SS yet. Thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2024-03-04 21:12
Estimated taxes are generally paid in equal amounts by the respective due dates. Some people who realize the bulk of their income late in the year (eg from a conversion) and are willing to file the 2210 Annualized Installment form (which is a hassle), pay at they go. But since you are doing at least half your conversions early you should just pay 1/4 of your annual on each due date, since the 2210 AI will not help you. If you meet your safe harbor, no matter how much you owe with your tax return, you will not owe an underpayment penalty. Otherwise, if you back load the estimates, you will owe a penalty for the first 3 quarters.