Roth IRA Conversions and Estimated Tax Payments

Submitted by Peter Karakondis on Mon, 2018-01-15 20:37

Hello,

I expect our (joint filing) 2017 federal taxes to be $2,000. This year we plan to do some Roth Ira conversions and expect our taxes to comes out to around &10,000, with a taxable income of about $77,000 (including the conversions).We are both retired and no tax is withheld from my pension.
Can we use the safe harbor rule and pay $500 each quarter to avoid any underpayment penalties? And does it make any difference if we made the conversions early or late in the year if we do pay equal quarterly payments that total up to last year’s tax?
IRS publications mention that there may be a penalty if, for one quarter, your payments do no cover the tax that would be owed for that time period; can I assume the safe harbor rule would override that? We would like to do a conversion this month and do not want to risk a penalty.
Is form 8606 the IRS form we use for the conversion?
(And I assume that recharacterizations are no longer allowed?)

Thanks so much for any information. (how do I find one of my previous questions on this site?)

Flag as spam

Permalink Submitted by Alan - IRA critic on Mon, 2018-01-15 22:38

As long as you pay quarterly estimates of 500 each, you will have met a safe harbor and will not incur any penalty regardless of how much additional you owe when you file. It does not matter how much you convert or when. That said, the following April you will owe the difference and you can no longer recharacterize conversions regardless if you overshoot your target or the conversion suffers investment losses. Yes, you wll report the conversions on Form 8606 with the taxable amount also showing on line 15b of Form 1040.
Enter your posting name in the search box and you should get a list of your posts.

Permalink Submitted by Peter Karakondis on Mon, 2018-01-15 22:49

Thanks so much, Alan!You answered all my questions and gave me the answers I hoped to hear!Thanks again.

Permalink Submitted by Cornelius Marbury on Wed, 2018-01-17 21:57

Traditional Conversion to Roth in 20016! Notified by IRS that tax is $13,000! Can the Roth be converted back toa traditional because I cannot pay the taxes?