paying taxes for roth conversions
I want to make a roth conversion in November. How do I pay for the taxes with outside money? Can I write a check to the IRS w/roth conversion tax on the memo line and mail it to what address?
I want to make a roth conversion in November. How do I pay for the taxes with outside money? Can I write a check to the IRS w/roth conversion tax on the memo line and mail it to what address?
Permalink Submitted by Alan - IRA critic on Thu, 2024-10-31 00:17
A Roth conversion adds to taxable income just like any other income. If the conversion will be large enough to expose you to an underpayment penalty, there are several ways to deal with this:
Just pay the penalty
File Form 2210 AI (a complex form to complete), which will reduce your underpayment penalty by documenting that this extra income came in the 4th quarter. That will limit the penalty to just the 4th quarter, assuming that you would have been OK without the conversion.
In addition to the above, you could pay an estimated tax by 1/15/2025 that would eliminate the above penalty completely. You could pay this 4th quarter estimated tax by using the IRS EFTPS system or mailing in a check with Form 1040 ES by 1/15/2025.
Another option is to have tax withheld from the conversion distribution, which is not recommended because the withheld amount is not converted. But if you withheld enough, it would eliminate the need for 2210 AI. And if you had the money, you could complete the conversion rollover by replacing the withheld amount within 60 days as a rollover contribution to your Roth IRA. This would create a two part conversion, and is not subject to the one rollover limit because the entire distribution would effectively be converted.
So you can see, there are multiple possibilities for addressing this situation.