Estimated tax when converting to Roth in 2010
I converted a portion of a Rollover IRA to a Roth in December 2008 and made state and federal quarterly estimated tax payments before December 31st, on the advice of my CPA, since my withholding for the year was not sufficient. I was informed that I needed to make quarterly estimated payments in the quarter that I “earned” the income.
I plan to convert the remainder of my Rollover IRA to my Roth in early 2010 and am curious as to when I will need to make the quarterly estimates when I’m able to pay the taxes over two years.
Permalink Submitted by Alan Spross on Thu, 2009-01-08 21:36
For the 2010 conversion, unless you wish to change the automatic two year deferral, your quarterly tax payments for the conversion would be based on when the income is reportable, not when you did the conversion. For 2011, you would increase your income by 50% of the taxable portion of the conversion, with the other half in 2012.
As long as you pay in equal quarterly installments that total your prior year tax liability, there will be no penalty (110% of it if your AGI is over 150,000 for the prior year). But if you want your estimates to cover your full tax bill without a large amount due, you will need to increase them accordingly.