Roth conversion and pay tax when?

Submitted by Roger Lee on Tue, 2018-03-13 18:26

I’m 61 and in 2016 tax liability was $5000 and received a refund for $3000 due to federal withholding on IRA distributions. December of 2017 converted $45000 from an IRA to Roth. The incremental tax liability increase for that conversion as calculated for my 2017 tax year filing (not filed yet) is $10000; $7000 is the actual amount payment owe on my 1040. Will I be penalized for underestimating my taxes for 2017 as compared to 2016? If I do a Roth conversion in Dec 2018 should I be paying estimated taxes each quarter? I saw mentioned Form 8606 but Taxslayer never asked or filed out that form; required?



Submitted by Alan - IRA critic on Tue, 2018-03-13 20:43

  • Your 2016 tax liability is what you actually paid after the refund is factored in. If 5000, then you had to pay in 5000 in 2017 either in equal quarterly estimates or withholding done anytime in 2017, or some combination of both. If you paid in this money, there will be no penalty regardless of how much additional you will owe in April. The same rules will apply to 2018, so if you do not have withholding done, then you need to pay in equal quarterly estimates based on your 2017 tax liability. Form 8606 is not related to this, but you need to file an 8606 to report the conversion you did last December. If you have basis in your TIRA from prior non deductible contributions, Form 8606 will also apply some of this basis to reduce the taxable amount of your conversion.
  • There is an exception to the above general rules if you elect to file the complex 2210 AI form. This form breaks out your income and deductions based on the quarter they occurred in. So if you do a December conversion, the form will allow you to pay a large estimate in the following January instead of paying equal quarterlies. But most people want to avoid the complexity of filing this form.

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