Form 8606 Part II Roth conversion with tax withheld as part of the conversion
I want to do a Roth conversion from my TIRA in 2023 of $60,000 (will do the conversion in November 2023) and want to have $9,000 withheld in federal taxes. I’m over age 59 1/2. My question is on form 8606-part II line16, where it indicates to enter the net amount converted. In my case is that $51,000? I had no basis in the $60,000 converted. Then a second question concerns Line 18 of the form. It says to subtract line 17 (in this case $0) from Line 16 with the result being $51,000. It also says to include this amount on Form 1040-line 4b. Will my 1099-R have a gross distribution of $60,000 (box 1) and taxable amount of $60,000 (box 2a) and federal tax withheld of $9,000 (box 4)? On form 1040-lines 4a and 4b my assumption is that I would enter $60,000. When the IRS says include from form 8606-line 18 on form 1040-line 4b it doesn’t mean replace with, correct? The $51,000 (net converted) is included in the $60,000-line 4b taxable amount. Is that correct way to think of it? I’m also assuming i would show the $9000 in the payments section of the 1040 line 25b.
Can you let me know if I’m correct in my assumptions.
My goal is to avoid having to make estimated tax payments. Also I dont to do a separate $9000 withdrawal from my TIRA with 100% withheld for federal taxes and a separate $51,000 conversion transaction unless that’s the only way I can do it without having to make estimate tax payments.
Thanks in advance.
Permalink Submitted by Alan - IRA critic on Thu, 2023-02-16 01:47
Yes your conclusions are all correct. Form 8606 line 16 will show 51k, line 17 0, and line 18 51k. For Form 1040 lines 4a and 4b will show 60k. You are also correct about the 1099R you will receive. That said, if you have the funds to make quarterly estimates you would be better off to do so to avoid drawing down your IRA and increasing your taxes due to the amount withheld. That 9000 could either remain in your IRA for a reduced tax bill or if it was converted to Roth your tax bill would be the same as with the withholding.
Permalink Submitted by Thomas Rabel on Thu, 2023-02-16 03:10
Thanks for responding so quickly. So if I don’t have the 9000 withheld on the 60,000 conversion then my tax bill is the same but I might owe a penalty for not paying the taxes in a timely manner if I dont file estimated taxes. Plus I would need to pay the tax from a non retirement account correct? I was trying to confirm what I would need to report on form 8606 and form 1040 if I had tax withheld which you answered
Permalink Submitted by Alan - IRA critic on Thu, 2023-02-16 03:48
Correct. If you did not withhold your tax liability would be the same, you would have the same balance in your TIRA, and you would have 9000 more in your Roth IRA. You would owe an underpayment penalty to the extent that you did not pay in equal quarterly payments from your other non retirement accounts at least as much as your 2022 tax liability (110% of your 2022 tax liability for higher incomes for your filing status (single, married joint etc). How are you paying your taxes if you do not convert? Are you retired and want to convert before RMDs start or perhaps SS?
Permalink Submitted by Thomas Rabel on Thu, 2023-02-16 04:26
Yes I just retired in May 2022. Right now I only have social security which I don’t have any withholding. I’m 69 and want to do some Roth conversions to lessen RMD’s once I reach age 73. I don’t have a lot of savings to pay for the conversions and my only other source of funds is social security. I have a TIRA worth about 170k and 401k worth about 350k. I was planning to do 3 Roth conversions until age 73 and then just RMD’s on the 401k. With what my social security benefits are I’m in the 12% tax bracket.