when are taxes due on a roth conversion?
If you decide to convert $500K to a Roth account.
I elect to convert $100,000 to a Roth IRA in December, 2010.
I understand I can elect to report the entire $100,000 on my 2010 1040 tax return…and pay any taxes due by October 15 2011.
The second says option I can elect to split the conversion in the years 2011 and 2012, does this mean:
option 1: i report $50,000 of income on my 2010 1040 tax return…and pay taxes due by october 15 2011. I report $50,000 of income on my 2011 1040 tax return …and pay taxes due by October 15 2012.
OR
option 1 I report $50,000 of income on my 2011 1040 tax return…and pay half the taxes by October 15, 2012. I report half the $50,000 on my 2012 1040 tax return…and pay half the taxes by October 15 2013.
thanks
kathy
Permalink Submitted by Alan Spross on Tue, 2010-09-14 22:49
It’s the latter situation. You would report half the income in 2011 and half in 2012. Estimated taxes or withholding needs to be paid in each of those years throughout the year or you will incur an underpayment penalty. While the returns for each of those years can be extended to the following 10/15 date, the taxes must be paid as you go throughout the year, and not at the end. You would try to meet a safe harbor, which is quarterly payments in 2011 equal to your total 2010 tax liability (or 110% if your 2010 income is over 150k), and in 2012 equal to your 2011 tax liability. That would eliminate any underpayment penalties, but of course there could still be a balance due on 4/15.
Wasn’t quite sure about how this 100,000 conversion relates to the other 500,000 total you plan to convert?