Roth Conversion Tax Payment
Hello! Question regarding Roth Conversions and tax payments. Let’s say I choose to make a Roth Conversion in Q1. From my understanding there are 3 options for paying the taxes on this, withholding the taxes as apart of the transaction, paying quarterly estimates, and waiting until April, although there could be additional penalties included.
If I choose to not withhold taxes and instead pay out of pocket, can I make a one time tax payment for my Roth Conversion, or does that payment have to be split into quarterly estimates?
Thank you!
Permalink Submitted by Alan - IRA critic on Wed, 2023-02-15 19:27
If you want to pay up front you could make your annual tax payment as one estimate by 4/18. That’s better than withholding from the TIRA distribution since it does not deplete your IRA by the withheld amount, which would be subject to tax and possibly 10% penalty, without that portion going into your Roth. Or if you do not want to give the IRS a nearly full year interest free loan, you could simply pay 4 equal quarterly estimates. You will avoid an underpayment penalty if your estimates meet your safe harbor amount which is typically 100% of your 2022 tax liability or 90% of your 2023 tax liability whichever is less.