When Is Tax Due on T-IRA to Roth Conversion?
This is an expanded question from an earlier post. I have added some additional information.
When is federal tax due on a Traditional IRA conversion to a Roth IRA? For example, if I do a conversion this week, will I need to make an estimated-tax payment on or before 4/15/09, or can I wait and pay it as late as the 2009 filing deadline on 4/15/10? As info, I’m 60, retired, and am currently living off only interest, dividends, and my cash savings. The answer will make a difference on how much I can convert now vs. later in the year.
Thank you for your help.
Permalink Submitted by mk foss on Thu, 2009-04-02 17:51
The answer depends on other factors in your personal tax situation. The IRS expects that your tax liabilty will be mostly paid in the year the income is earned. Penalties apply if you do not meet one of the safe harbors. The first one is 100% (or 110% for higher incomes) of the previous year’s tax. The next one is 90% of the current year’s tax.
If 2008 was a relatively low tax year, yuo could pay 2009 tax based on it. Then you could pay the tax on the Roth conversion 4/15/2010 and not be penalized for underpayment. If 2008 is a high tax year, you should take the conversion into account for the 90% rule. All income earned through 3/31/09 is taken into account for the 4/15/09 installment the tax on an April conversion would first affect the 6/15/09 installment.