Tax for Roth Conversion in Oct 2023 – was I supposed to do estimated payments?

Submitted by G Guadagnino on Tue, 2024-02-06 06:27

I am retired, over 65 years old with no earned income, not collecting Social Security yet (waiting for age 70). I’ve been withdrawing from my 403b and 401a for expenses and did a couple of rollovers from 403b to a Roth in 2023.

I’ve been reading that I can pay at tax filing in 2024 and then other articles say an estimated tax payment needed to be paid with quarterly payments in 2023 or paid in full.

It is too late now for 2023 if I should have done estimated payments by Jan 16, 2024 for the 2023 rollover Roth Conversions, but for future, can I pay at filing in 2025 for a Feb 2024 Roth Conversion I just completed or make 1st quarter estimated payment by Apr 16 2024 or pay in full.

If I pay the IRS online, how do they know which payment is for which year? I’ve never had to pay IRS before and don’t know if the online payment system asks for which year the payment is for or is it best to send a check and add memo for the year payment?

Thank you for any help on this.
Bella



Submitted by David Mertz on Tue, 2024-02-06 13:21

  • The US tax system is pay as you go, with an amount paid for each tax quarter sufficient to satisfy the required amount for that quarter.  The required amount ultimately depends on various factors related to the current quarter’s income, the previous year’s tax liability and your total income for the current year.
  • https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes
  • By default, your income is treated as received evenly throughout the year.
  • By default, any tax withholding is treated is paid evenly throughout the year.  Estimated tax payments are instead treated as paid when actually paid.
  • The sooner that you make a late tax payment, the less interest you will owe.
  • When you make an estimated tax payment with IRS Direct Pay after January 15, Direct Pay only allows you to specify the current year as the year for which the payment is being made.  You could make a payment for the previous year by completing and filing your tax return, paying any balance due (which you can do electronically in various ways), or by April 15 you can make a payment for the previous year by specifying the payment as a request for a filing extension.  Of course, you can always mail a check along with a Form 1040-ES for the year that the payment is to be applied.  when mailing an estimated tax payment for 2023 with a 2023 Form 1040-ES, also write ““2023 Form 1040-ES” on the check to indicate the year for which the payment is being made.


Submitted by G Guadagnino on Tue, 2024-02-06 19:44

Thank you for all this information.Bella



Submitted by William Tuttle on Tue, 2024-02-06 20:15

  • As pointed out by DMx the underpayment penalty is really just a daily interest charge. The sooner you correct any underpayment the better.
  • As indicated by DMx the easiest, fastest and least expensive way to make any necessary late estimated tax payment. Is by filing an extension and making a payment towards your tax return.  Note: Filing for an extension does not prevent you from filing on time.
  • Normally, you meet a safe harbor if your withholding and/or quarterly estimated tax payments are >= 90% of your current year tax liability.
  • However, you might be able to make a smaller or no payment using another safe harbor.
  • If your “withholding” and/or estimated tax payments are 100% (110% if AGI > $150K) of your prior year (2022 in this case) tax liability. If this was your first year of significant taxable rollovers. With this safe harbor, there may have been little to know underpayment.
  • For 2024, you can use the treatment of tax withholding as being withheld equally during the year to your benefit. I routinely pay my entire year’s retirement plan distributions, interest, dividends and capital gains tax liability with distributions for withholding. Make sure you include those in your tax liability. No need to do estimated tax payments earlier in the year.


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