Roth Conversion and Estimated Taxes
I’m recently retired and have converted funds from a Traditional IRA to my ROTH. In order to maximize this conversion I elected to not have my trustee withhold federal tax and will gladly pay taxes from non-IRA funds. Do I need to pay a one time quarterly lump for the entire tax liability or can I spread the liability over 4 quarterly estimated payments. I have never paid estimated taxes before.
Thanks for the advise.
Tim Pearson
Permalink Submitted by Alan - IRA critic on Wed, 2018-03-21 15:59
The short answer is that you can pay 4 equal estimates even if you converted in the first quarter. However, you don’t have to pay estimated taxes if you have a source for withholding such as a pension, SS, or additional IRA distributions. Do you want to pay in enough just to avoid an underpayment penalty, or do you want to pay in enough to avoid a tax bill in April, 2019? Note that if you pay quarterly estimates, they should be equal or front loaded. If your estimates are back loaded (last couple higher than first two), then you can still be penalized unless you file a complex form (2210 AI) that most people want to avoid.
Permalink Submitted by TIMOTHY PEARSON on Wed, 2018-03-21 16:41
I like keeping it simple. I will figure the tax on the converted amount and pay 4 equal payments. In fact Turbo Tax 2017 spit out 4 pre-printed estimated tax forms and I’ll just scratch out the old numbers, put in new numbers to account for the additional funds and become a new member of the estimated tax payers club.