How to do I calculate and pay advanced taxes for a Roth IRA conversion I did last month?

[Kris A]

I converted 80K from an IRA to an Roth IRA account in July. How to I calculate and pay advanced taxes during this quarter so I don't have to pay a penalty? Do i use IRS tax table or expected effective tax rate to come up with taxes that are due?

[marctu]

So the starting point for this is your taxable income for the full year.  

So, let’s start with the tax brackets for 2024:

2024 Filing Status: Single, Married Filing Jointly (MFJ), and Qualifying Surviving Spouse (QSS)

Tax Rate	Single Taxable Income Range (2024)	MFJ and QSS Taxable Income Range (2024)
10%	Not over $11,600	Not over $23,200
12%	Over $11,600 but not over $47,150	Over $23,200 but not over $94,300
22%	Over $47,150 but not over $100,525	Over $94,300 but not over $201,050
24%	Over $100,525 but not over $191,950	Over $201,050 but not over $383,900
32%	Over $191,950 but not over $243,725	Over $383,900 but not over $487,450
35%	Over $243,725 but not over $609,350	Over $487,450 but not over $731,200
37%	Over $609,350	Over $731,200

2024 Filing Status: Head of Household (HOH) and Married Filing Separately (MFS)

Tax Rate	HOH Taxable Income Range (2024)	MFS Taxable Income Range (2024)
10%	Not over $16,550	Not over $11,600
12%	Over $16,550 but not over $63,100	Over $11,600 but not over $47,150
22%	Over $63,100 but not over $100,500	Over $47,150 but not over $100,525
24%	Over $100,500 but not over $191,950	Over $100,525 but not over $191,950
32%	Over $191,950 but not over $243,700	Over $191,950 but not over $243,725
35%	Over $243,700 but not over $609,350	Over $243,725 but not over $365,600
37%	Over $609,350	Over $365,600

If your filing status is single the standard deduction would be $14,600 for tax year 2024. If married filing jointly it is $29,200 and HOH is $21,900.

You would need to see what marginal or marginal tax brackets the $80K conversion being the last incremental money  for the year falls in.   That would be the payment that you should make.  So here is an example:

Taxable Income $100K and single.  So while there is a small increment in the 22% tax bracket the vast majority of the $80K is in the 24% tax bracket.  So I would make a payment of $19,200 on or before September 16, 2024 here: IRS Direct Pay

Thank you for the question @Kris A 

Be well and safe!

Marc T.

Turbo Tax Expert

27 Years of Experience Helping Clients

[Terri Lynn]

Hello Kris A, and thank you for your questions!

You asked,"How do I calculate and pay taxes for a Roth IRA conversion in advance?"

To calculate and pay advanced taxes on a Roth IRA conversion, follow these steps:

1. Determine the amount of the conversion: The amount you converted is the starting point for calculating your estimated taxes. This amount will be included in your taxable income for the year.

2. Project your income for the year: Estimate your total taxable income for the year, including the conversion. This will help you determine the correct tax bracket and tax rates that apply to your total income.

3. Calculate your estimated tax liability: Use the tax rates, tax brackets, and deductions to estimate your tax liability for the year, including the tax due on the conversion.

4. Calculate your required estimated tax payments: To avoid underpayment penalties, you may need to make quarterly estimated tax payments to the IRS. The required amount is usually 90% of the current year's tax liability or 100% of the prior year's tax liability (110% for high-income earners). You can use Form 1040-ES to calculate your required estimated tax payments.

5. Make your estimated tax payments: You can make estimated tax payments online, by mail, or by phone using the IRS Electronic Federal Tax Payment System (EFTPS).IRS Payments 

Keep in mind that converting from a traditional IRA to a Roth IRA can add  the conversion amount to your taxable income for the year, potentially pushing you into a higher tax bracket. The conversion is then taxed at your ordinary tax rate, which may be adjusted depending on your new tax bracket.

For instance, if you're in the 22% tax bracket and convert $20,000, your taxable income for the year increases by $20,000. If this does not push you into a higher tax bracket, you will owe $4,400 in taxes on the conversion.

However, if your taxable income now exceeds the threshold for the 22% tax bracket, the conversion amount exceeding that threshold will be taxed at a higher rate, which is 24% in 2024.

Also keep in mind that this increase to your overall income, could impact your state tax return, as well, so you may want to consider making a state estimated payment based on your individual state income tax rates, as well.

For additional information on this topic, please see:

Roth Conversions 

What are Traditional and Roth IRA Cnversions? 

IRA Conversions 

Please feel free to reach backout with any additional questions or concerns you might have!

Have an amazing rest of your day!

Terri Lynn, EA

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